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Volume 14, Number 1

January 2010

I n This Issue...
3 UPDATES: BAFT-IFSA Seeks to Impact Trade Finance Reform; A First: English Court Decides UCP600 Case; URDG 758 Programmes Held in Asia; Confidence & Concern: Two Views of Dubai; Non-Operative Guarantees Used in Bogus Sugar Deals; ICC Offers Recommendations Concerning Piracy Problem; Banks Asked to Reduce LC-Related Fees; Philippines Widens LC Issuance Options; New York Offers Property Owners Lower LC Fees; Cornr Banca Latest to Opt for MITs CREDOC Software; UK Bank Launches Shariah-Compliant Structured Trade Finance Fund; FHL Bank Fills Financing Void; Banks Sign Refinancing Deal with Glencore; Lincoln National Corp., Credit Suisse Strike LC Deal; Barclays Leads Syndicated Deal for Gazprom; International Updates 12 READERS SPEAK: When Confirmer Refuses, What Happens to the Confirmation? 14 LITIGATION DIGEST: Lombard v. Landmark J.P. Morgan Chase Bank, N.A. v. Texas Contract Carpet, Inc. Newly Decided LC & Guarantee Cases 32 ICC OPINIONS: TA675rev 34 TEXT: Science Park Administration v. Standard Chartered Bank Full Text 38 LC STATISTICS: US Branches of Non-Banks (3rd Quarter 2009) 43 SCAM SURVEY 45 LC TRADE NEWS

20 FEATURE
LC JURISDICTION The exercise of jurisdiction over a letter of credit case can give rise to disputes with international dimensions, at times relying on separate rules outside the parameters of the LC. In her article, Dr. Ningning ZHANG takes up the topic of LC jurisdiction issues in the United Kingdom. She first examines one set of rules comprised of two European Conventions and Judgments Regulation, then another set consisting of traditional English jurisdiction rules. This dual system does present challenges. For letters of credit, the contrast is even more pronounced. Because the two sets of rules are likely to remain for the foreseeable future, Dr. ZHANG issues a call for increased harmonization for the sake of reducing legal costs and conflicts.

Published in partnership with BAFT-IFSA

ocumentary Credit World, (DCW), is published monthly by Letter of Credit Survey, Inc. Opinions expressed in it do not necessarily reflect the official positions of the publishers of DCW, its Editorial Board, Editorial Advisory Board, or the organizations with which they are associated. Authors, editors, members of DCWs Editorial Board and Editorial Advisory Board, and the institutions with which they are associated often are actively involved in the field as lawyers, advisers, parties, consultants, or expert witnesses in many of the matters addressed in DCW. The publication often reflects and sometimes adopts their views. Notwithstanding positions expressed in DCW, every effort will be made to publish differing viewpoints and contributions expressing such views are welcomed.

Editorial Advisory Board Sue E. Auerbach (DC) Michael Evan Avidon, Partner Moses & Singer LLP (NY) James G. Barnes* Baker & McKenzie (Chicago) Alan Bloodgood, Consultant* (retired, J.P. Morgan) Harold Burman, Senior Counsel, Office of Legal Adviser US Department of State Joseph Colleran, Consultant (retired, Irving Trust) Gary Collyer* Collyer Consulting LLP Dr. Alan Davidson, Senior Lecturer TC Beirne School of Law University of Queensland (Australia) Philip J. De Chiara (retired, Wells Fargo Bank) Professor E.P. Ellinger National University of Singapore Haluk Erdemol, Advisor, Intl Division Akbank T.A.S. (Turkey) Roger D. Fayers, LLB Barrister (UK); Department of Trade & Industry, Soliciters Department (retired) Clyde Fletcher, Documentation Manager Fonterra Limited Gerard A. Genevieve (retired, Bank of New York) Dr. Gerold Herrmann (retired, United Nations Commission on International Trade Law) Heinz Hertl ICC-Austria (retired, Bank Austria/ Creditanstalt, Vienna) George Hisert, Partner Bingham McCutchen LLP (San Francisco) Professor Katsuto Iida Tezukayama University (Japan) Dean Rafael Illescas Ortiz University Carlos III de Madrid (Spain) Jin Saibo, Partner Beijing Commerce & Finance Law Offices (China) Carter Klein, Partner Jenner & Block (Chicago) *Denotes Editorial Board member

Professor Boris Kozolchyk, Director* National Law Center for InterAmerican Free Trade Jack Kurzer, Vice President Deutsche Bank (NY) Arthur Lloyd, Consultant* (retired, Control Risks, Ltd.) Professor Salvatore Maccarone La Sapienza University - Rome David Meynell, Director Deutsche Bank London Neal Millard Musick, Peeler & Garrett LLP Adjunct Professor, USC Law School Dennis Noah* (retired, M&T Bank) Professor Yorng-Won Pae The University of Seoul (Korea) Janis S. Penton, Senior Counsel Union Bank of California, N.A. Jianbao Shan, Executive Vice President China Everbright Bank (China) Martin Shaw, Consultant (retired from Barclays and Lloyds) (London) Angelo J. Schiraldi, Consultant (retired, IntesaBci (NY) Donald R. Smith* President, Global Trade Advisory, Ltd. Soh Chee Seng, Technical Consultant, Trade Finance Issues, the Association of Banks in Singapore (Singapore) Joseph Sommer (NY) Chang-Soon Thomas Song, Manager Korea Exchange Bank (Seoul) Professor Jean Stoufflet University of Clermont - Ferrand (France) Alexander Zelenov, Director Bank for Foreign Economic Affairs of the USSR (Moscow) Litigation Board Stanley L. Lane, Jr., Member Otterbourg Steindler Houston & Rosen, P.C. (NY) Stanley McDermott III, Partner Piper Rudnick LLP (NY) James G. Munisteri Gardere Wynne Sewell & Riggs, L.L.P. (Houston)

Documentary Credit World 20203 Goshen Road., No. 343 Gaithersburg, MD 20879 USA phone: fax: e-mail: website: +1-301-330-1970 +1-301-926-1265 info@doccreditworld.com www.doccreditworld.com

Editor-in-Chief Professor James E. Byrne Contributing Editor Vincent Maulella Managing Editor Christopher S. Byrnes Associate Case Editor Matthew C. Butsick Scam Survey Editor Jacob A. Manning Trade News Editor Arushi Sharma Student Research Associates Gordon D. Breuer J. Paul Ferman

Published by Letter of Credit Survey, Inc. ISSN 1520-0221. Copyright 2010 by Letter of Credit Survey, Inc. All rights reserved. No part of this journal may be reproduced in any form, including microfilm, xerography or otherwise, or incorporated into any information retrieval system, without the written permission of the publisher. Single subscription price: $595 per year. Global license information available upon request. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional services. If legal advice or other expert assistance is required, the service of a competent professional should be sought.

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BAFT-IFSA Seeks to Impact Trade Finance Reform enior officials of the newly merged BAFT-IFSA were in Europe in January to continue their efforts to demonstrate that trade finance is a relatively safe banking endeavor and the need for positive trade finance reform. Donna Alexander, chief executive of BAFT-IFSA, and Dan Taylor, chief operating officer of BAFT-IFSA and vicechairman of the ICC Banking Commission, say that while regulators are receptive to the possibility of reforming trade finance rules, much work remains to convince them of how to do so. At a time when reviving trade finance is seen as a vital component toward energizing economic recovery, some fear that bank regulators could opt to go in the other direction and tighten bank lending rules. Alexander and Taylor said industry surveys and data show that bankers believe that trade finance instruments such as letters of credit are treated under bank capital rules as being much riskier than they really are. Its not really in line with the level of risk that historically these transactions incur, said Alexander in a Reuters article by Jonathan Lynn.

A First: English Court Decides UCP600 Case n what is believed to be the first reported court decision involving a UCP600 letter of credit, an English court held that the words MAY ADD in an LC amount to relevant authorisation by an issuing bank to a confirming bank to confirm a credit subject to UCP600. In Fortis Bank v. Indian Overseas Bank decided on 25 September 2009, the Queens Bench Division, Commercial Court, Hamblen, J., concluded that all [Issuers] defences fail save for the consolidated certificate discrepancy defence, which defence succeeds subject to preclusion issues. In relation to the preclusion point I will allow further evidence/ argument to be advanced and will hear counsel as to the appropriate order to be made in such circumstances. DCW has learned that the Englands High Court of Justice will hand down a further judgment in late January 2010 on the same case which is expected to have wide-ranging implications for the banking community and to be the first reported case to interpret UCP600 Article 16.

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A 2009 survey conducted by BAFT illustrated that many banks found the current rules for trade finance under the Basel II regime discouraged them from extending trade credit, according to the article. BAFT-IFSA is also currently conducting a new survey to collect feedback in advance of the June 2010 G20 summit in Canada. In addition, Taylor says the ICC has initiated a project with the Asian Development Bank to develop a trade finance loan default registry. One of the registrys aims is to generate hard figures to reinforce their belief that trade finance is considerably less risky than other forms of credit.

URDG 758 Programmes Held in Asia n January 2010, Professor James E. Byrne and Mr. Soh Chee Seng

presented programmes comparing URDG 758 to ISP98. Sessions were held in Shanghai, Shenzhen, Hong Kong, Taipei, and Singapore. They were sponsored by ICC China (PRC locations), cosponsored by the Institute of International Banking Law & Practice and Wachovia/Wells Fargo (HK), the Taiwan Academy of Banking and Finance, and the Association of Banks in Singapore. Attendees included approximately 500 bankers, corporate finance officials, attorneys, and government officials. The focus of the presentations was Revised URDG Version 758 which is effective 1 July 2010. Its provisions were compared with UCP600 and ISP98, which were its primary sources. The sessions considered the extent to which the revision copied, drew on, or altered these two rules and the strengths and

weaknesses of the revision. One of the surprises that the sessions revealed was the extent to which UCP600 is used for Demand Guarantees in Asia. In light of the success of the presentations, the Institute is preparing a DVD for distribution that capsulizes the presentations. Information about it will be announced soon with an expected release of 1 March 2010. DCW will also highlight features of the URDG revision in coming months.

Confidence & Concern: Two Views of Dubai ccording to Financial Express, Indian exports to Dubai remain strong despite the Dubai debt crisis. United Arab Emirates was Indias biggest export destination in 20082009, comprising 13% of

continued on page 7

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BAFT and IFSA Announce Merger to Form BAFT-IFSA


January 19, 2010 WASHINGTON The Bankers Association for Finance and Trade (BAFT) and the International Financial Services Association (IFSA) announced that the two entities have merged, effective today. Members of each respective organization voted overwhelmingly in favor of the merger last month. Both BAFT and IFSA bring outstanding pedigree in the world of payments and international trade and finance. Their combination creates the preeminent organization of its kind in the world and will provide the international financial services community with comprehensive representation; broader, deeper expertise; and expanded resources. BAFT-IFSA will continue to focus both on the broader issues affecting regional and global transactional banking services, such as trade, payments and cross-border financing, and training and operations technologythe crucial inner workings of any organization. Bringing the two entities together under one umbrella gives the combined association increased breadth, depth and influence. Donna K. Alexander, BAFT president, is now chief executive officer of BAFT-IFSA, while Dan Taylor, IFSA president and CEO, is now president and chief operating officer of BAFT-IFSA. Alexander noted that the value proposition of the merger for members will include instant access to a wider range of products, services, programs, training, global practices, advocacy opportunities, economies of scale, and future rationalization of membership fees. The combined organization yokes the unique strengths of BAFT and IFSA, increasing our ability to grow and expand membership and provide programs and services to a broader global market, said Alexander. Members of BAFT-IFSA will benefit from a financially stronger organization with greater influence around the globe. Taylor echoed these sentiments, noting that the merger further strengthens existing relationships with regulators and other policy makers. The merger takes full advantage of the over 170 years of banking and advocacy experience of the two organizations and expands and integrates the international community around the world. For nearly nine decades, BAFT has taken on regional challenges faced by bankers that specialize in international trade and finance, advocated on their behalf and developed business solutions and helped build valuable peer-to-peer relationships. Its regional councils provide insight into markets around the globe, and its information resources increase members understanding of developments affecting the industry. For 85 years, IFSA has met the needs of those who provide, use and support the international operations areas of financial services providers, their customers, suppliers and partners. IFSA has represented the interests of its membership before international rule and lawmaking bodies and has been a key player in the establishment and revision of every significant U.S. or international law or rule governing global financial services. We are committed to taking the best of each organization, as well as using the merger as an opportunity to find new ways of approaching issues and providing services, said Alexander. No part of either organization or its work will be discontinued.

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Indias total export at nearly US$24 billion, one-third of which is transacted through letters of credit. However, most of the exports are for transhipment to other markets, particularly in Eastern Europe, Russia, North Africa, and the Middle East. Some 44% of the exports are in the jewelry market, whose sales have slowed because of the sharp rise in gold prices. Anand Sharma, Indias Commerce Minister, tried to calm fears, saying, I do not think some development in the Dubais real estate sector will impact us. The fundamentals in India are strong. The Press Trust of India reports less optimism, claiming that exporters in India remain concerned over Dubais credit crisis. In particular, exporters remain anxious about Indian banks not honoring letters of credit from Middle East banks. Trade experts remain less concerned, unless the crisis spreads to Dubai-based banks. At worst, they claim, payments would be made directly to Indian banks instead of being routed through Dubai. Engineering Export Promotion Council chairman Aman Chadha remains optimistic as well. One may see an increase in the insurance premium for exports to Dubai. At the same time, engineering exporters may drop the 90-120

day credit window for sales to Dubai-based firms and ask for reliable letters of credits, Chadha said.

Non-Operative Guarantees Used in Bogus Sugar Deals eware of corporate bids in the sugar trade, warns commodity analyst Tejinder Narang in Business Line. India, he claims, is likely to import 67 metric tons of sugar next year. Many spurious sellers from Europe, US, Thailand, Brazil, and elsewhere will start offering corporate bids quoted generally at US$100 per ton below the ruling commercial prices of futures exchanges of London and New York. The bids typically mention that the seller will furnish a non-operative performance bank guarantee of 3%-5% of the total contract value through the bank, and that such a guarantee will become operative when the 100% irrevocable letter of credit is received from the buyer. This allows the seller to take advantage of the Indian LC to draw US dollar pre-shipment credit at low interest rates to finance the procurement of a cargo and then dispose of the cargo at the ruling international price to another buyer. In the end, Indian importers are duped and receive no

sugar. Narang strongly urges importers to buy only from reputable sellers or from the members of the International Sugar Organisation, London. At the very least, traders should closely scrutinize all offers, bids, and transactions.

ICC Offers Recommendations Concerning Piracy Problem ince October 2009 there have been 33 attacks of which 13 vessels were successfully hijacked in the Northern Indian Ocean, according to the ICC International Maritime Bureau (IMB). Concerned about the rising frequency of attacks in recent months, the ICC issued a twopage paper stating its recommendations with regard to piracy in the Indian Ocean. The ICC document, prepared by the Head of ICCs Maritime Transport work, Andy Tung, and IMB Director, Captain Mukundan, points out the pirates increasing use of motherships to launch smaller attacks on target vessels far out to sea has contributed heavily to this disturbing trend. ICC finds it unacceptable that such violent activities continue to cause disruption to international trade, and more importantly threaten the lives of thousands of seafarers on a daily basis. The protection of

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shipping from piracy regardless of flag, or the nationality of the crew is a clear and legitimate responsibility for governments under the United Nations Convention on the Law of the Sea, the paper states. Among its recommendations, the ICC calls upon governments to bolster their protection of merchant shipping by increasing the navies patrolling the Horn of Africa and the Northern Indian Ocean. It further calls upon the navies in these areas to provide naval commanders with clear rules of engagement and instructions to act against motherships, in line with UN Security Council Resolution 1851 which call for seizure and disposal of boats, vessels, arms and equipment used by pirates or suspected of being used by them. Said Donald Smith, President of Global Trade Advisory Ltd., about the ICC addressing the piracy problem: As much of the flow of goods in this area is letter of credit related, this matter should be of interest to the industry.

QUOTE TO NOTE

To those who see the victimization of others as an avenue to wealth, take notice: If you fabricate a financial statement, if you propagate an investment scheme, if you are complicit in an act of financial fraud, you are writing your ticket to jail.

US Attorney General Eric Holder West Palm Beach, FL 8 January 2010

Banks Asked to Reduce LC-Related Fees angladesh Bank (BB), the countrys central bank, issued a circular in November 2009 asking commercial banks in Bangladesh to reduce the

quarterly commission on opening deferred letters of credit from the existing 0.60% to a maximum of 0.50% in hopes of helping exporters cope with the global economic recession. Right Vision News reports that the BB circular fixed the maximum LC confirmation charge at 0.20% of existing charges and LC amendment and transfer charges at Tk750 (US$10.50). The circular also reduced the LC advising fee from Tk1,000 (US$14) to a maximum of Tk750 and fixed the interest on Export Development Fund (EDF) at LIBOR plus 1%, effective for loans released on or after 6 April 2005. BB also asked banks to cancel other charges, including handling and endorsement of copied documents. It further barred banks from charging overdue interest on payment of export bills at sight of export documents under an LC, subject to submission of

necessary export documents by the exporters to the banks concerned.

Philippine Central Bank Widens LC Issuance Options for Thrifts s of March 2009, thrift banks in the Philippines with at least P1 billion in capital and a minimum capital adequacy ratio of 10% have been permitted by the central bank to offer letters of credit, denominated in foreign currencies. Previously, thrift banks could only issue pesodenominated LCs. Since then, one bank has tripled its capital to P3 billion (US$21.6 million) so that it can issue LCs in currencies other than peso and prepare itself for possible acquisitions in 2010. BusinessWorld reports that Philippine Business Bank, Inc. (PBB) increased its capital for it to pursue opportunities to buy other lenders. The

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Philippines Securities and Exchange Commission approved the capital increase on 17 September 2009. Bank chairman Alfred M. Yao, who also heads Zest-O Corp. and Zest Airways, Inc., said this would allow the thrift bank to secure a license for foreign letters of credit from the Bangko Sentral ng Pilipinas.

New York Offers Property Owners Lower LC Fees ew York States affordable housing lender, known as nyhomes and comprised of agencies such as the New York State Housing Finance Agency (HFA) and the State of New York Mortgage Agencys Mortgage Insurance Fund, has begun to provide mortgage insurance relief for rehab projects of affordable multifamily projects. Property owners traditionally obtained letters of credit for their construction projects, but fees for construction-related LCs have risen from 75-150 basis points in 2008 to 200-300 basis points. nyhomes will charge 125 basis points during construction for its mortgage insurance. To be eligible, property owners must obtain HFA financing and keep their projects affordable for at least 30 years.

Cornr Banca Latest to Opt for MITs CREDOC Software ornr Banca SA is the latest financial institution to select CREDOC software developed by MIT (Micro Informatique & Technologies SA) to support its Trade Finance operations. The system will be interfaced with Cornr Bancas core banking system developed in-house and their SWIFT solution Stelink from Sterci, an MIT official partner. Cornr Banca is a key banking player in the Ticino (Switzerland) region, said Paul Cohen Dumani, MITs General Manager adding that this new CREDOC implementation will reinforce our presence in Lugano since the Cornr Banca will be our third operative site in the region.

to the ongoing credit crisis, many Western banks operating in this sector are restricted in their trade finance activities and the creation of an Islamic fund to service this sector would have worldwide benefits, providing liquidity to a market that has been seriously constrained. According to Arab News reporting of the Fund, trade finance could also boost intraIslamic trade which current estimates place at 14% of total trade of the 56 member countries of the Islamic Development Bank (IDB). Adds Arab News: In some markets such as Turkey, trade finance forms a major part of the financing portfolios of the Islamic banking industry. Indeed, letters of credit (LCs) and guarantees are in fact confirmed through counterparties in Bahrain for the above transactions which run into millions of dollars a year. There have been a number of trade funds established over the years, [b]ut they have been consumed by the glamor of mutual, private equity and real estate funds, and more recently by the odd sukuk fund. Several Islamic bankers rue the fact that many Islamic financial institutions are neglecting trade finance in

UK Bank Launches Shariah-Compliant Structured Trade Finance Fund n what some are calling a welcome return to a classical bread-and-butter asset class and financing activity, which the Islamic finance industry seems to have neglected over the last few years, Gatehouse Bank plc will launch a Shariah-compliant Structured Trade Finance Fund in early 2010. The wholesale Islamic bank based in the UK notes that due

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order to pursue other types of transactions private equity, asset management, real estate etc.

FHL Bank Fills Financing Void with Standby LCs he Federal Home Loan Bank of San Francisco has recently issued 11 standby letters of credit supporting non-housing related tax-exempt bond issuances for public-purpose and industrial development projects. In addition to these completed transactions totaling US$167 million in credit enhancement, an additional $110 million of similar standbys are pending as of 9 January 2010 according to Real Estate Business Journal. Given the current economic environment, use of a FHL Bank standby LC to credit enhance a tax-exempt bond transaction may help lower the overall cost of borrowing for bond-financed projects and stimulate economic development in communities served by Bank members. As previously reported in DCW (Sept. 2008, p. 6), a provision of the Housing and Economic Recovery Act of 2008 (HERA), signed into law in 2008 permits a non-housing related tax-exempt bond that is supported by a Federal Home Loan Bank standby LC to retain its tax-exempt status,

provided the bond is issued before 31 December 2010. The downgrading of bond insurers in the wake of the financial crisis left a significant void in financing for critical infrastructure and other valuable projects, said Stephen P. Traynor, Senior Vice President, Financial Services and Community Investment at the Bank. We are pleased to offer a tool that our members can use to support these kinds of projects and boost economic development activities in their communities.

UBS, UniCredit Group, Union de Banques Arabes et Francaises and Zuercher Kantonalbank.

Banks Sign US$1.22b Refinancing Deal with Glencore anks have signed a US$1.22 billion one-year refinancing for Swiss commodities trader, Glencore, according to Trade Finance. Led by bookrunner ING and lead arrangers BNP Paribas and DBS, the facility allows Glencore to have standby letters of credit and guarantees issued to it at a margin of 110 basis points with upfront fees of 100 bp. Other banks joining the deal as arrangers include: ANZ, Atradius, Banco Santander, Bank of China, BTMU, Caja Madrid, Credit Suisse, DZ Bank, Deutsche Bank, GarantiBank, HSBC, Helaba, ICBC, KBC, Mizuho, National Australia Bank, National Bank of Greece, Natixis, RBS, RZB, SEB, Scotia Capital, SMBC,

Lincoln National Corp., Credit Suisse Strike LC Deal incoln National Corp. announced on 7 January 2010 that it and certain of its subsidiaries have entered into a US$550 million, 10-year letter of credit transaction with Credit Suisse AG to support regulatory capital requirements for its life insurance business. According to an LNC press release, the transaction is expected to provide approximately $400 million of initial statutory capital relief as of year-end 2009, to Lincolns primary insurance subsidiary, The Lincoln National Life Insurance Company.

Barclays Leads Syndicated Deal for Gazprom arclays Capital closed general syndication of a US$148 million oneyear debut syndicated loan for Gazprom Marketing and Trading on 14 December 2009. Gazprom will use the deal to provide letters of credit to liquefied natural gas infrastructure facilities in Mexico and California. According to EuroWeek, seven other banks joined Barclays on the deal.

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International Updates BANGLADESH: The National Board of Revenue will take legal actions against a company that illegally imported liquor worth over Tk 5 crore (US$710,000) through false declaration and also against the pre-shipment inspection (PSI) company that certified the import. The importer allegedly declared goods worth only Tk 243,699 (US$3,537) and its owner reportedly gave a fake address and contact number while opening a letter of credit with Pubali Bank, Khulna in September 2009.
CHINA: Industrial and Commercial Bank of China (ICBC) became the first financial institution outside the Gulf area to gain licensed approval from the Central

Bank of the United Arab Emirates to set up a branch in Abu Dhabi, according to China Knowledge. With its new license, ICBC will be able to provide more services, including LCs, project loans, letters of guarantee, and currency exchange, which were previously restricted. NEPAL: An act repealed in December 2009 will make it possible for Agricultural Development Bank Limited (ADBL) to issue letters of credit for the first time. Previously, ADBL has been referring its customers wanting to open LCs to the Bank of Kathmandu as per an agreement made between the two banks. Customers would deposit collateral at ADBL while the Bank of Kathmandu issued the LCs. The two banks

would share the commission generated by the transaction. An ADBL official said that, although there was much potential, the bank had been losing customers as it was unable to provide complete banking services. PAKISTAN: The country has been issued a final ultimatum and would be declared a high-risk country if it fails to upgrade its antimoney laundering law before February 2010, said State Bank of Pakistan (SBP) officials, according to Pakistans Daily Times. SBP officials believe the countrys LCs will not be honoured abroad and there will be difficulties in international trade if the government fails to take the matter seriously, reports Daily Times.

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THE READERS SPEAK

WHEN CONFIRMER REFUSES, WHAT HAPPENS TO THE CONFIRMATION?


Query: We confirm a letter of credit for a customer but the documents that are submitted are discrepant, thereby nullifying our confirmation. We then send them on to the issuing bank overseas on a collection basis. The foreign bank then gets the applicant to sign a waiver for the discrepancies and the issuing bank then accepts the documents. When we receive notification that the issuing bank has accepted the documents, is the LC made whole and our confirmation re-instated? UCP600 (Art. 8) states that the confirming bank must honor the credit if the documents constitute a complying presentation. I have heard some people say that once the acceptance is issued by the foreign bank, the confirmation is re-instated. Others argue that it is still not a complying presentation but one consisting of waived, discrepant documents, thereby still nullifying the confirmation. Who is correct?

DCW Responds:
A sufficiently worded and timely given refusal of a presentation received by a confirming bank does not nullify the confirmation; the refusal establishes a valid defense to the confirmers dishonor of that presentation and preserves that defense against an affirmative defense of preclusion (which displaces waiver and estoppel). Forwarding the documents to the issuer should normally be done by a bank so as to constitute a presentation to the issuer under the LC. Nominated banks should avoid saying that they are forwarding documents on a collection or approval basis. That statement may accurately describe the forwarding banks role, but might also be interpreted as describing the receiving banks role, with the effect of excusing the issuer from processing the forwarded documents under the LC. A knowledgeable beneficiary wants his documents presented to the issuer for examination and payment under the LC. He wants to be paid, if at all possible, under, not outside, the LC. The issuer might decide the presentation complies. The applicant might waive discrepancies with the effect of inducing the issuer to honor. The issuer might inadvertently preclude itself from raising discrepancies. A forwarding bank should not assume that it is authorized by the beneficiary to switch the presentation on the

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READERS SPEAK

issuer from LC to documentary collection law and practice. In this regard, it is not necessary for any nominated bank, including a confirmer, to tell an issuer that the confirmer found the documents discrepant; it is enough for the confirmer to say that presentation is made to the issuer under its LC by the forwarding bank on behalf of the beneficiary and not to claim reimbursement for itself. If, after confirmer refusal, the issuer honors its LC undertaking, whether or not

based on applicant waiver of discrepancies, that should not change the status of the nominated banks confirmation or the status of its refusal notice. If the issuer only half honors (by accepting a draft or incurring a deferred payment undertaking but not paying at maturity), that should not affect the confirmer. To put it differently, preclusion is specific to the bank that precludes itself. In the question posed, the confirmer has not precluded itself from raising non-

compliance as a defense. The analysis and result should apply whether the LC is subject to UCP600, UCP500, or the UCC. A confirmer is not bound by the issuers obligation to honor documents that were rightfully refused by the confirmer. Comments to all queries posed to DCW are not necessarily those of DCW and are not provided as legal advice. If legal advice or other expert assistance is required, the service of a competent professional should be sought.

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January 2010 Documentary Credit World 13

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LITIGATION DIGEST LITIGATION

Lombard v. Landmark [2009] 4 All SA 322 (SCA) [South Africa] Abstracted by Professor Michelle KELLY-LOUW*

Topics:

Independence Principle; Nature and Interpretation of Construction Guarantee and Indemnities; Fraud

Type of Lawsuit: Guarantor sued Indemnitors for reimbursement after it had paid in terms of a construction guarantee. Parties: Appellant/Plaintiff/Guarantor Lombard Insurance Company Ltd (Counsel: Panayiotis Stais SC and CJ McAslin instructed by Frese, Moll & Partners c/o Butler Blankenberg, Cape Town and Webbers Attorneys, Bloemfontein) Respondents/Defendant/Indemnitors (Counsel : Peter J Berthold SC instructed by DLA Cliffe Dekker Hofmeyer, Cape Town and McIntyre & Van der Post, Bloemfontein) Principal/Contractor Landmark Construction (Pty) Ltd. Beneficiary/Employer South African Maritime Training Academy Underlying Transaction:

Construction contract concluded between the principal (contractor) and the beneficiary (employer). Construction guarantee (i.e., demand guarantee) and various indemnities. Silent as to governing rules and maximum amounts.

Instrument:

* Professor in Banking and Insolvency Law, Department of Mercantile Law, University of South Africa.

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Decision:

The South African Supreme Court of Appeal upheld an appeal (with costs) and reversed a judgment in favour of Indemnitors delivered by the Western Cape High Court, Cape Town (formerly known as the Cape Provincial Division). Indemnitors obligation to pay in terms of their indemnities is, just like the payment obligation in terms of the construction guarantee, wholly independent from any underlying transaction and except in the case of fraud (in the narrow sense) must be honoured. Agreement is made for the purpose of convenience and shall not be construed as any intention whatsoever to create an accessory obligation or any intention whatsoever to create a suretyship 3.2 Its obligation under this Guarantee is restricted to the payment of money 3.3 Reference to a practical completion certificate or to a final completion certificate shall mean such certificate as issued by the Principal Agent. (Emphasis added.) Before the construction guarantee was issued, three related companies provided Guarantor with indemnities in the event that it had to pay in terms of the construction guarantee. The first respondent executed a document entitled RECIPROCAL INDEMNITY AND SURETYSHIP in favour of Guarantor, in terms of which the respondent undertook to indemnify and keep indemnified and hold it [the guarantor] harmless from and against all and any claims, losses, demands, liabilities, costs or any other expenses of whatsoever nature ... which [Guarantor] may at any time sustain or incur by reason or in consequence of having executed or hereafter executing any guarantees .... The 1st Indemnitor also further, undertook and agreed to pay Guarantor on demand any sum which the latter may have been called upon to pay under any guarantee, whether or not Principal of the guarantee admitted the validity of the claim. The 2nd and 3rd Indemnitor executed two written documents in similar terms in favour of Guarantor. Although both documents had the title DEED OF SURETYSHIP, they had the following identical feature: The Indemnitors undertook as principal debtors to indemnify Guarantor against any claims of whatsoever nature which it may incur by reason of it having executed or in the future executing any guarantee.

Rationale:

Factual Summary: In 2002, Guarantor, a shortterm insurance company, issued a construction guarantee on behalf of a construction company (Principal). The basis for the guarantee was a construction contract between Principal and Beneficiary of the guarantee. Guarantor also bound itself as principal debtor in favour of Beneficiary of the construction guarantee, undertaking to pay Beneficiary, on demand, the guaranteed sum or the full outstanding balance upon the happening of one of two eventualities:
default by the principal (the construction company) resulting in cancellation or; a liquidation order being granted against the principal (the construction company). The construction contract contained the following important clause: 3.The Guarantor hereby acknowledges that: 3.1 Any reference in this Guarantee to the

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In 2003, the Principal of the construction guarantee was liquidated. Beneficiary then drew on the guarantee, stating in its demand that Principal had been placed in liquidation, that a final completion certificate had not been issued, and that consequently an amount of ZAR241 429,77 (about US$35,740) was due to it by Guarantor, purportedly the value of work done post the issue of the practical completion certificate. Guarantor honoured the demand and then turned to the Indemnitors for reimbursement under their indemnities. Indemnitors refused to pay on the basis that the agent who had issued the completion certificates in terms of the construction agreement had perpetrated a fraud in the presentation of the claim. Guarantor then sued Indemnitors for reimbursement in the Western Cape High Court, Cape Town (formerly known as the Cape Provincial Division). The court of first instance, the Western Cape High Court, Cape Town, decided the matter on the basis that the construction guarantee had to be interpreted in conjunction with the construction contract (underlying transaction). It incorrectly held that Guarantor was only obliged to pay a claim under the construction guarantee if the claim was within the terms of

the construction contract. According to the court of first instance, the claim did not fall within that purview and therefore, Guarantor was not obliged to pay and neither was any one of the respondents. Guarantor appealed against this decision. The appeal was granted and the judgment reversed.

and the beneficiary (see in para 19). Regarding the nature of the contraction guarantee the appellate court said the following (in para 20): The guarantee by [Guarantor] is not unlike irrevocable letters of credit issued by banks and used in international trade, the essential feature of which is the establishment of a contractual obligation on the part of a bank to pay the beneficiary (seller). This obligation is wholly independent of the underlying contract of sale and assures the seller of payment of the purchase price before he or she parts with the goods being sold. Whatever disputes may subsequently arise between buyer and seller is of no moment insofar as the banks obligation is concerned. The banks liability to the seller is to honour the credit. The bank undertakes to pay provided only that the conditions specified in the credit are met. The only basis upon which the bank can escape liability is proof of fraud on the part of the beneficiary. This exception falls within a narrow compass and applies where the seller, for the purpose of drawing on the credit, fraudulently presents to the bank

Legal Analysis: 1. Independence Principle; Nature and Interpretation of Construction Guarantee and Indemnities; Fraud: The appellate court correctly found that the court of first instance misinterpreted the nature of the construction guarantee and the indemnities provided by Indemnitors. The construction guarantee created an obligation to pay upon the happening of an event. The appellate court pointed out that the construction guarantee itself recorded that the reference to the construction contract was solely for the purpose of convenience and that there was no intention to create an accessory obligation or suretyship (see clause 3.1 of the construction guarantee quoted above). The construction guarantee was to protect the beneficiary in the event of default by the principal (the construction company) and it was to the guarantee that one had to look to determine the rights and obligations of the guarantor

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documents that to the seller s knowledge misrepresents the material facts (Loomcraft Fabrics CC v. Nedbank Ltd and another 1996 (1) SA 812 (A) at 815G816G). In terms of the construction guarantee, Guarantor undertook to pay Beneficiary upon Principal being placed in liquidation. Guarantor, it was accepted, did not collude in the fraud and there was no obligation on it to investigate the correctness of the claim. The trigger event in respect of which it granted the guarantee had occurred and the demand was properly made (see para 21). The same applied to the undertakings/indemnities by Indemnitors. They undertook to indemnify the guarantor of the construction guarantee (the appellant) in the event that it paid a claim based on the guarantee provided by it. That event occurred and Indemnitors were, thus, likewise liable.

Comments: The Supreme Court of Appeal correctly

acknowledged the autonomy principle of the construction guarantee. A fundamental characteristic of documentary credit law is the autonomy of the credit. The autonomy principle is also fundamental to demand guarantees (i.e., construction guarantees).1 In the United States, Revised Article 5 of the Uniform Commercial Code (UCC) deals with both commercial and standby letters of credit and the principle of autonomy is codified in Section 5-103(d). The principle of autonomy is also codified in articles 3 and 4 of the 1993 version of the Uniform Customs and Practice for Documentary Credits (UCP500); articles 4 and 5 of the 2007 version of the Uniform Customs and Practice for Documentary Credits (UCP600); article 2(b) of the 1992 Uniform Rules for Demand Guarantees (URDG); and Rules 1.06(a), 1.06(c), and 1.07 of the International Standby Practices (ISP98). The United Nations Convention on Independent Guarantees and the Standby Letters of Credit which applies to an international undertaking such

as a demand guarantee or a standby letter of credit, also mentions the autonomy principle applicable to these letters of credit and guarantees in articles 2 and 3. The first time the South African courts briefly referred to the fraud exception to the autonomy principle in relation to letters of credit/demand guarantees was in 1985 in Phillips v. Standard Bank.2 However, it was not until the Loomcraft Fabrics v. Nedbank3 case in 1995 that the courts really acknowledged and dealt with the fraud exception in the South African law. The Appellate Division (now the Supreme Court of Appeal) in Loomcraft Fabrics v. Nedbank provided merely a basis for the fraud rule and has left many uncertainties regarding, specifically, the concept of fraud and the standard of proof that is required. However, the value of this decision lies in the fact that the Appellate Division did make it clear that: South African courts would consider intervening and issue interdicts restraining

1. See HN Bennett Performance bonds and the principle of autonomy (1994) Journal of Business Law 574; and Raymond Jack, Ali Malek & David Quest Documentary credits: the law and practice of documentary credits including standby credits and demand guarantees (3ed 2001) in par 1.41 at 21. In Union Carriage and Wagon Company Ltd v Nedcor Bank Ltd 1996 CLR 724 (W) at 731732 it was confirmed that the autonomy principle also applies to standby letters of credit and advance payment guarantees (i.e., demand guarantees). 2. 3. 1985 (3) SA 301 (W). 1996 (1) SA 812 (A).

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payment in cases where the fraud was clearly established; and South African courts would be willing to enforce the fraud exception where the forgery or falsification concerned the documents (i.e., where there was fraud in the narrow sense).

contract (i.e., in cases of fraud in the wide sense). The court in Union Carriage v. Nedcor Bank,4 however, remarked by way of an obiter dictum that had the beneficiary and the applicant entered into an agreement in terms of which the beneficiary undertook not to draw on the

South African law regarding the fraud exception is far from being settled.
However, since 1995 there have been no other South African cases specifically dealing with the fraud rule. The South African fraud rule has thus remained stagnant for more than a decade and it is unclear how the courts would apply the fraud rule today. For instance, the courts have not yet indicated that they will not be prepared to interdict a bank from paying in the case of fraud concerning the performance by the beneficiary in terms of the underlying letter of credit (i.e., a pactum de non cedendo) and had the beneficiary, nevertheless, sought to extract payment under the letter of credit, it could conceivably have been guilty of fraud. It has been said that although this comment was made obiter, it provides an indication that the South African courts may be willing to look beyond the letter of credit documents in considering whether there was any fraud on the part of the beneficiary. It therefore

provides support for the view that fraud justifying interference with the beneficiarys claim to payment is not limited to the so-called documentary fraud. However, from the Lombard case, discussed above, it appears that the Supreme Court seems to support the view that it would only be willing to enforce the fraud exception where the forgery or falsification concerned the documents (i.e., where there was fraud in the narrow sense) South African law regarding the fraud exception is far from being settled. From the very limited (and old) case law that is available at this time, one can see strong correlations with the English law in South African courts application of the fraud exception. However, there are still many uncertainties regarding the limits of the fraud rule in South African law and there is much speculation as to how it will be applied by the countrys courts.

4.

1996 CLR 724 (W).

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J.P. Morgan Chase Bank, N.A. v. Texas Contract Carpet, Inc. No. 03-05-00629-CV, 2009 Tex. App. LEXIS 9443, 2009 WL 4725290 (Tex.App.-Austin) [USA]

Topic: Use Note: As part of a construction agreement with Agape Round Rock Housing, Inc., d/b/a Chandler Creek Apartments (Owner), JP Morgan Chase Bank (Bond Trustee/Issuer) issued a letter of credit in the amount of US$15,800,000 to bond owner Charter MAC Equity Issuer Trust (Bondholder/ Beneficiary). Owner missed the project completion date, causing an event of default to occur under the construction agreement. As a result, Bondholder/Beneficiary instructed Issuer to draw upon the letter of credit to pay the interest due at the time. Issuer took possession of the bonds as collateral for the amount owed by Owner under the loan. Subsequently, Issuer sold the bonds for US$12 million, a US$4 million loss. Various subcontractors sued Bond Trustee/Issuer and others under various theories including misappropriation of trust funds, breach of fiduciary duty, negligence, and conversion. The Texas District Court of Williamson County, Anderson, J. awarded damages and exemplary damages against Bond Trustee/Issuer. After having settled certain issues, Bond Trustee appealed the judgment with respect to violation of a duty to withhold amounts, misapplication of trust funds, negligence and gross negligence in failing to withhold the amounts, violation of fiduciary duty to subcontractors, and conversion. The Court of Appeals of Texas, Austin, Law, C.J., Puryear, and Henson, JJ., in an opinion by Henson, J., reversed as to the issues of violation of a duty as agent to withhold amounts, violation of a statutory duty with respect to trust accounts, negligence in failing to withhold amounts, breach of fiduciary duty, and conversion, and also ruled that exemplary damages were not appropriate. [JEB/gdb]

NEWLY NEWLY DECIDED LC & GUARANTEE CASES


Fifth Third Bank v. Kohls Ind., L.P., and Kohls Department Store 2009 Ind. App. LEXIS 2668 [USA] 18 December 2009 Norris v. Jackson Hewitt, Inc. 2009 U.S. Dist. LEXIS 114514 [USA] 8 December 2009

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LETTER OF CREDIT JURISDICTION ISSUES IN THE UNITED KINGDOM


By Ningning ZHANG*

Introduction The exercise of jurisdiction over an LC case can give rise to disputes with international dimensions. The problem is complicated because a letter of credit arises from a series of relationships involving three or more roles and usually different parties, each of whom may be located in a different country. In the United Kingdom, the issue of jurisdiction is usually determined by reference to separate sets of rules. One set of rules encompasses the European Conventions and the Regulation, including the European Community Convention on Jurisdiction and the Enforcement of Judgments in Civil and

Commercial Matters (the Brussels Convention),1 the Lugano Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters,2 and the Council Regulation (EC) 44/2001 on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters (the Judgments Regulation hereafter).3 They apply respectively to disputes falling within the scope of the Brussels Convention, the Lugano Convention or the Judgments Regulation. The other set consists of traditional English jurisdiction rules, mainly based on the Civil Procedure Rules. These rules

apply to cases that fall outside the scope of the two Conventions and the Judgments Regulation. This paper will discuss how these rules apply in the area of letters of credit. In the first part, certain differences between the two Conventions and the Judgments Regulation will be addressed and the influence of these changes on matters pertaining to letters of credit will be analysed. Following that, two bases for jurisdiction laid down in the traditional rules (e.g. presence within jurisdiction and service out of jurisdiction) will be discussed in detail. In the end, attention will be given to the differences of these two sets of rules and their influence on letters of credit.

* Dr. Ningning ZHANG, LLB (SWUPSL (China)), LLM (University of Aberdeen), PhD (the University of Liverpool), once worked in the Bureau of Judiciary, Yuzhong District, Chongqing, P. R. China, and is now working at the Law School of the Southwest University (China) as vice-professor. Current research interest is about letters of credit. 1. The Brussels Convention was agreed in 1968 by the member states of the EU, with the goal of increasing economic efficiency and promoting the single market by harmonizing the rules on jurisdiction and preventing parallel litigation. 2. The Lugano Convention was concluded in Lugano on 16 September 1988. It is a parallel convention to the Brussels Convention but applies to EFTA countries. 3. The Judgments Regulation came into force on 01 March 2002, and applies to all the Member States of the European Union (including the 10 new Member States as of 01 May 2004 with the exception of Denmark. It supersedes (except as regards Denmark) the Brussels Convention and it also supersedes (except as regards Iceland, Norway and Switzerland) the Lugano Convention.

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Related Rules in Two Conventions and the Judgments Regulation Although the two European Conventions and the Judgments Regulation are similar in many aspects, there are significant changes in the Judgments Regulation. Concerning letters of credit, two changes are worth discussing. One is that the Conventions leave the meaning of domicile to be determined by national laws, while the Judgments Regulation provides autonomous rules for ascertaining the domicile of companies. The other is that, unlike the Conventions, the Judgments Regulation stipulates an autonomous definition for the place of performance in relation to the contract of the sale of goods and the provision of services only.
The rule of domicile Both the two Conventions and the Judgments Regulation assign jurisdiction to the court of the contracting state where a party is domiciled in that state.4 As regards a natural person, the Judgments Regulation, like the two Conventions, requires the court to apply its internal law to determine whether such a person is domiciled in the country in question. Thus, if the English courts are required to determine whether the defendant is domiciled in England, Section 41(2) of the Civil Jurisdiction & Judgments Act 1982 (CJJA) will apply. It provides that an individual is domiciled in the United Kingdom if and only if (a) he is resident in the United Kingdom; and (b) the nature and circumstances of this residence indicate that he has a substantial connection with the United Kingdom. Then, if the beneficiary or the applicant being a natural person is sued under a letter of credit, the courts in the UK have jurisdiction where that person is a resident of the UK and has substantial connection5 with the UK. However, a difference occurs in the situation where the party concerned is a legal person. Sub-article 60(1) of the Judgments Regulation provides an autonomous definition for the domicile of a legal person, which provides: For the purposes of this Regulation, a company or other legal person or association of natural or legal persons is domiciled at the place where it has its: (a) statutory seat, or (b) central administration, or (c) principal place of business. This definition is similar to the one in the CJJA where Section 42(3) states that a corporation or association has its seat in the United Kingdom, if and only if (a) it was incorporated or formed under the law of a part of the United Kingdom and has its registered office or some other official address in the United Kingdom; or (b) its central management and control is exercised in the United Kingdom. It is obvious that the definition in the Judgments Regulation is clearer than that in the CJJA. First, the rule in the Judgments Regulation exclusively indicates what constitutes the statutory seat. In sub-article 60(2), the statutory seat includes the registered office or, where there is no such office anywhere, the place of incorporation or, where there is no such place anywhere, the place under the law of which the formation took place. Only above three places are

4.

See Article 2 of the Brussels Convention or the Judgments Regulation respectively.

5. The requirement of substantial connection shall be presumed to be fulfilled that an individual is resident in the United Kingdom, or in a particular part of the United Kingdom; and has been so resident for the last three months or more, unless the contrary is proved. See Section 41(6) of CJJA 1982.

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statutory seats. Meanwhile, in sub-article 60(2), a list fixes the order of priority regarding the place in respect of which lawsuit should be filed. The applicant cannot choose at will any of the places to launch the lawsuit. Only in the situation of unavailability/inoperability of places higher on the list is the applicant at liberty to this, the plaintiff often turns to an alternative location for legal proceedings, like the place of performance. Rules Relating to Place of Performance In addition to the place of domicile, a plaintiff is also allowed to commence legal proceedings in the place of reasonably to predict before which courts, other than those of the State in which he is domiciled, he may be sued for the purpose of strengthening legal protection of persons.8 Following this principle, this section will discuss the issues of matters relating to a contract, the obligation in question, the place of performance and a discretion to stay in the area of letters of credit. Matters relating to a contract In Chailease Finance Corporation v. Credit Agricole Indosuez,9 the issuing bank refused to accept documents tendered by the beneficiary on the grounds that there was one discrepancy in the documents. The court was required to determine the place of performance of the obligation in question, in the situation where the beneficiary indicated the place for payment after the issuing of the letter of credit. The Court of Appeal went directly to the issue of place of performance without considering whether the relationship between the issuing bank and the beneficiary fell within the

In relation to letters of credit ... the plaintiff often turns to an alternative location for legal proceedings, like the place of performance.
initiate proceedings against the defendant at a place that is mentioned lower on the list next to the higher stand. Finally, in the Regulation, principal place of business is added in which extends the scope that a court could exercise its jurisdiction. Since the rule of domicile is designed to give a certain place to sue, it is very clear and easy to operate in practice. However, this rule is not preferred by the plaintiff in relation to letters of credit. The reason is that, in most cases, to invoke this rule the plaintiff has to sue in a different country. In view of
6. 7. 8. 9.

performance. Such rules are based on a close link between the court and the action or in order to facilitate the sound administration of justice.6 Sub-article 5(1) of the Judgments Regulation7 which deals with matters relating to a contract is one of the special rules. Sub-article 5(1) provides that a person domiciled in a Member State may, in another Member State, be sued, in matters relating to a contract, in the courts for the place of performance of the obligation in question. This sub-article should be interpreted in a way that enables a normally wellinformed defendant

http://europa.eu.int/eur-lex/pri/en/oj/dat/2001/l_012/l_01220010116en00010023.pdf. Also in the Brussels Convention. Jakob Handte & Co. GmbH v. Traitements Mcano-chimiques des Surfaces SA EU: Case C-26/91. [2000] 1 Lloyds Rep. 348; abstracted at 2001 ANNUAL SURVEY OF LETTER OF CREDIT LAW & PRACTICE 205.

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meaning of matters relating to a contract under sub-article 5(1). It could be reasonably inferred that such a relationship has already been recognized by the Court of Appeal as a matter relating to contract. The contractual relationship between the issuing bank and the beneficiary is established at the time that the beneficiary is informed of the issuing of the credit although the issuing bank does not contract with the beneficiary directly. Thereafter, the issuing bank assumes the payment obligation to the beneficiary against the consistent documents. For this consideration, the Court of Appeal in Chailease was right in applying sub-article 5(1) to the relationship between the issuing bank and the beneficiary. However, it needs to be addressed that not all disputes between the issuing bank and the beneficiary are matters relating to a contract. In Trafigura Beheer BV v. Kookmin Bank Co.,10 the credit required a full set of 3/3 original bills of lading. It also allowed a letter of indemnity (LOI) to be issued by the seller to replace the required documents in the case where the required documents (especially bills of lading) were not available at the time of negotiation. An advising bank in London paid the beneficiary against a letter of indemnity which was addressed to the buyer rather than to the issuing bank or the advising bank itself (two of the three copies of the bills of lading were handed over to the issuing bank and one copy was passed to the applicant to whom the goods were released by the shipper upon this copy of bills of lading). The issuing bank did not obtain reimbursement from the buyer since the latter went into liquidation, and so the bank commenced a proceeding against the beneficiary on the grounds that the latter had breached its obligations for handing over only two of the three copies of the bills of lading which rendered the bank as losing security against the goods. In this case, the issuing bank claimed for a pecuniary remedy which was not based on a contract (the contract of sale, the LC or the LOI). Instead, the beneficiary was alleged to commit a civil wrong against the issuing bank according to Article 750 of the Korean Civil Code, which provides that Any person who causes loss or inflicts injuries on another person by an unlawful act, wilfully or negligently, shall be bound to make compensation for damages arising therefrom. Thus, the court held that the claim was to be characterized as a claim in tort and therefore, the English conflict of laws rules concerning tort as set out in Part III of the Private International Law (Miscellaneous Provisions) Act 1995, not sub-article 5(1) of the Convention, applied. The Trafigura case suggests that it cannot be simply stated that all disputes between the issuing bank and the beneficiary fall within the scope of sub-article 5(1) even though there is a contractual relationship between them. The obligations assumed by the beneficiary to the issuing bank may not be contractual obligations. Instead, these obligations might be imposed by law. Hence, in order to invoke subarticle 5(1), it is important to ascertain whether the obligations are freely assumed by one party towards another.11

10. [2006] EWHC 1450 (Comm); noted at 2007 ANNUAL SURVEY OF LETTER OF CREDIT LAW & PRACTICE 230. 11. In Jakob Handte & Co. GmbH v. Traitements Mcano-chimiques des Surfaces SA EU: Case C-26/91., the European Court of Justice held that the phrase matters relating to a contract, as used in Sub-article 5(1) of the Convention, is not to be understood as covering a situation where there is no obligation freely assumed by one party towards another.

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The obligation in question In De Bloos v. Bouyer,12 the European Court of Justice held that the obligation in question was the obligation which was the basis of the legal proceedings. In the situation where the beneficiary does not obtain payment, there is a dispute as to whether the obligation in question is the obligation to pay or the obligation to examine the documents and to take up the conforming documents by the bank. In Chailease, the Court of Appeal accepted the former view. Potter LJ said: Although it is clear that, in providing a code in respect of the procedures, responsibilities and liabilities of the various parties to a letter of credit, the UCP 500 lays down a number of detailed requirements for the examination of documents and the determination whether or not they are discrepant, it does nothing to erode the undertaking of the issuing bank to make, and the interest of the
12. [1976] ECR 1497. 13. [1990] 2 Lloyds Rep. 112. 14. Custom Made Commercial Ltd v. Stawa Metallbau GmbH [1994] ECR I-2913. Industrie Tessili Italiana Como v. Dunlop AG [1976] ECR 1473. It held that It is for the court before which the matter is brought to establish under the Convention whether the place of performance is situated within its territorial jurisdiction. For this purpose it must determine in accordance with its own rules of conflict of laws what is the law applicable to the legal relationship in question and define in accordance with that law the place of performance of the contractual obligation in question.

beneficiary to claim, payment under the terms of the credit, that being the obligation the performance of which is sought in the proceedings brought by the beneficiary. Accordingly, it seems clear to me that the obligation in question in these proceedings is the obligation to make payment under the credit. According to the agreement between the applicant and the issuing bank, the issuing bank has to perform two interrelated obligations. One is to examine the documents and the other is to make payment provided that the documents, after examination, do not contain discrepancies. Although, in most cases, the obligation of payment is simply regarded as counterperformance by one party against the main obligation performed by another party, in essence a letter of credit is one kind of payment method for international trade transactions. The first obligation is just the precondition for the bank to fulfill its second obligation,

and the beneficiarys main concern also focuses on the latter. In Medway Packaging Ltd v. Meurer Maschinen GmbH,13 the Court of Appeal held that the principal obligation in question determines jurisdiction in the situation where there are more than two obligations. Then, the obligation in question is the obligation to make payment in letters of credit. The place of performance Before the Judgments Regulation came into force, the meaning of the place of performance of the obligation in question remained to be solved pursuant to the substantive law governing the obligation in dispute under the conflicts rules of the court seised.14 Sub-article 5(1)(b) of the Judgments Regulation, however, contains autonomous rules for sale of goods and provision of services. It states: For the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be: in the case of the sale of goods, the place in a

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Member State where, under the contract, the goods were delivered or should have been delivered; in the case of the provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided. Although such autonomous rules are only for the sale of goods and the provision of services, by analogy with them it could be reasonably drawn that the place of performance as regards letters of credit is the place where the payment is to be made. This point of view was also accepted by the court in Chailease. The issue before the court in Chailease15 was that the credit did not state an exact place for payment at the time of issuing. The credit only indicated that upon receipt at our counters in Geneva of documents in strict conformity with this stand-by letter of credit terms and conditions, we shall pay you as per your instructions, value two Geneva/New York Bank working days. Mr. Males for the appellant/defendant argued that the place of performance should be
15. [2000] 1 Lloyds Rep. 348. 16. E.g. Jakob Handte G.m.b.H. v. Traitements Mecanochimiques des Surfaces, [1992] E.C.R. I-3967; Mulox v. Geels, [1993] E.C.R. I-4075; Kleinwort Benson Ltd. v. Glasgow City Council, [1999] 1 A.C. 153. 17. Urquhart Lindsay & Co Ltd v. Eastern Bank Ltd [1922] 1 KB 318; Ficom SA v. Sociedad Cadex Limitada [1980] 2 Lloyds Rep 118; Glencore Grain Rotterdam BV v. Lebanese Organisation for International Commerce [1977] 2 Lloyds Rep 386.

Switzerland where the documents were presented. The Court of Appeal rebutted Mr. Maless argument and held that the place of payment could be determined by subsequent agreement between the parties concerned. Potter LJ said: In such cases and, as it seems to me, in the instant case which concerns the due place of payment under a documentary credit, the Court does not abdicate from its task of ascertaining the due place for payment according to the apparent intention of the contract (i.e. expressly or by implication). In the course of that task, the Court may and, in my view, should have regard to any subsidiary agreement by the parties in that respect or to the outcome of any machinery or method for subsequent determination of the place of payment which is anticipated and/or permitted within the terms of the contract. If by those terms, the parties anticipate that the place for payment may be determined at the option of one party and

subsequently communicated in instructions to the other, then there seems to me no convincing argument of principle or policy why the rule of jurisdiction in subarticle 5(1) should be treated as inapplicable, simply because the parties have agreed that the crystallization of the obligation as to the place of payment be postponed in that manner. It is true that protection of legal certainty of jurisdiction has been repeatedly stated by the European Court of Justice.16 However, allowing the parties to determine the place of payment later does not violate this principle. English authorities are silent as to when a specific place of performance should be ascertained by the parties. Then, according to English law, the parties have the right to reach a subsequent agreement to fill the contractual gap.17 Soon after an instruction which contained a definite place of payment was given, the bank knew where it was to make payment before it performed its obligation in question and where any likely

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legal proceedings would take place. As a result, no uncertainty could be held to exist from the time the instruction was issued. Furthermore, an issuing bank which, however, indicated in its credit that the place of payment should be determined by further instruction of the beneficiary was likely to be held as giving up its right of indicating a specific place at an earlier time. In such a situation, it would be quite strange for that issuing bank to make a claim for the lack of certainty of such an instruction. A general discretion to stay Schedule 4 of the CJJA which applies a modified version of the Brussels Convention provides that: The court shall stay the proceedings so long as it is not shown that the defendant has been able to receive the document instituting the proceedings or an equivalent document in sufficient time to enable him to arrange for his defence, or that all necessary steps have been taken to this end. According to this provision, forum non conveniens is not the basis for discretion to stay. The principle of forum non conveniens is that a stay will only be granted on the ground of forum non conveniens where the court is satisfied that there is some other available forum, having competent jurisdiction, which is appropriate forum for the trial of the action, i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice. 18 This principle imposes great discretion power on the courts in determining a stay of action. This is not inconsistent with the related rules of the Brussels Convention where the forum non conveniens doctrine is not recognized according to Section 49 of the CJJA. In Owusu v. Jackson,19 the European Court of Justice explained: Application of the forum non conveniens doctrine, which allows the court seised a wide discretion as regards the question whether a foreign court would be a more appropriate forum for the trial of an action, is liable to undermine the predictability of the rules of jurisdiction laid down by the Brussels Convention, in particular that of art. 2, and consequently to undermine the principle of legal certainty, which is the basis of the Convention. Although the Owusu case referred particularly to Article 2 of the Convention, it should also apply to sub-article 5(1) and other rules in the Convention because rules of the Convention should also follow the principle of protecting legal certainty laid down in the Owusu case.

Traditional Rules In cases where the Brussels Convention, the Lugano Convention, and the Judgments Regulation do not apply, determination as to whether the English courts have jurisdiction should be made according to the traditional rules which are now enshrined in the Civil Procedure Rules (CPR) and its supplement Practice Direction. In this paper, two forms of jurisdiction under the traditional rules will be addressed. One is the in personam jurisdiction which arises where the claim form is served on the presence of the defendant within jurisdiction. The other is that, in some cases, the English courts could serve the service out of jurisdiction.

18. In Spiliada Maritime Corp v Cansulex Ltd [1987] AC 460. 19. [2005] 1 Lloyds Rep. 452

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Presence within the Jurisdiction In the situation where the defendant is present within jurisdiction, the plaintiff has the right to require the court to exercise its jurisdiction, though the court may stay the proceeding on the ground of injustice.20 The rule of presence is different from that of domicile in the European Conventions and the Judgments Regulation. No matter how fleeting the defendant is present in jurisdiction, the English court is entitled to exercise its jurisdiction according to the rule of presence. Thus, so far as the defendant can be served with the claim form, the court can exercise jurisdiction over disputes relating to letters of credit. According to Rule 6.12 (1) of CPR 2008, a claim form can be served on an agent of a principal who is out of jurisdiction provided that the contract to which the claim relates was entered into within the jurisdiction with or through the defendants agent and at the time of the application either the agents authority has not been terminated or the agents is still in business relations with the defendant. Thus, the issuing bank could be sued in the beneficiarys country in the situation where it had nominated another bank to pay within that jurisdiction provided that its contract with the beneficiary was also advised by that nominated bank. For this consideration, the beneficiary could not sue for payment in his own country if an advising bank had been utilized to advise, and only to advise, the credit within that jurisdiction since the burden of the advising bank ceased as soon as the credit had been communicated to the beneficiary. Furthermore, to advise the credit is one of the obligations that an issuing bank assumes but is not the principal one (the principal one should be the obligation to pay). Then, according to Medway Packaging Ltd v. Meurer Maschinen GmbH,21 the beneficiary cannot sue for non-payment of the issuing bank in his country solely on the ground that credit is advised through a bank within that jurisdiction. Service out of the Jurisdiction Unlike the circumstance of presence within jurisdiction, the action of the court in cases of service out of jurisdiction is discretionary. The court ought to be exceedingly careful before it allows a writ to be served out of jurisdiction since great inconvenience and annoyance will be entailed in bringing a foreigner, who owes no allegiance, to contest his rights in another country.22 Only in the situation where the claim falls within any part of Practice Direction 6B 3.1 (former CPR Rule 6.20 before 1 October 2008) can the court grant permission to serve proceedings out of jurisdiction. In granting permission, the court should be satisfied that certain standards of proof and the principle of forum conveniens are met. Standard of proof In Seaconsar Far East Ltd v. Bank Markazi Jomhouri Islami Iran,23 the House of Lords held that the majority of the Court of Appeal erred when they held that Seaconsar had to establish under either of those sub-paragraphs (sub-pars.

20. See R. 7.2 & 7.5 of CPR. 21. [1990] 2 Lloyds Rep. 112. See detailed discussion in this paper. 22. Socit Gnrale de Paris v. Dreyfus Brothers (1885) 29 Ch.D. 239. 23. [1994] 1 A.C. 438.

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(d)(i) or (ii) of Rule 1(1) of RSC, Order 11 which was replaced by CPR 1998 R. 6.20, and now is recorded in CPR 2008, Practice Direction 6b 3.1) a good arguable case on the merits. Instead, the leave to serve out of the jurisdiction was granted in so far as there was a serious issue to be tried. The test of a serious issue to be tried means that where there is a substantial legal question arising on the facts disclosed by the affidavits which the plaintiff bona fide desires to try, the court should, as a rule, allow the service of the writ.24 Compared with the test of good arguable case which is the standard of civil burden of proof, the test of a serious issue to be tried is a lower test. In exercising its discretion under [RSC Order] O.11, the court should be satisfied not only by certain evidence that there is need for the issue to be tried, but also by the requirement of forum conveniens.25 It is then inapposite to apply the language of the civil standard of proof applicable to issues26 since at the stage of determining jurisdiction, the court is only required to decide on affidavits from both sides and without full discovery and/or cross examination.27 Otherwise, it would be wholly inappropriate once the question[s] of jurisdiction and forum [conveniens] are established for there to be prolonged debate and consideration of the merits of the plaintiffs claim at the interlocutory stage.28 It is worth mentioning that the phrase a serious issue to be tried is replaced by the phase of a reasonable prospect of success which is laid down in CPR 2008, R. 6.37 (1)(b). In The Islamic Republic of Pakistan v. Asif Ali Zardari, Romina Properties Limited, Winkford Farm Limited, Parsonage Farm Limited,29 Mr Justice Lawrence Collins took a view that it is probable that there is no practical difference between this test [a reasonable prospect of success] and the test for the purposes of RSC Order 11, r 1(1) of a serious issue to be tried. Then, in order to determine whether to grant the service out of jurisdiction, the proper standard should be the test of a reasonable prospect of success which substitutes the test of serious issue to be tried and which is lower than that or of good arguable case since there is no need to do full discovery and/or cross examination at the interlocutory stage. Forum conveniens The principle of forum conveniens is designed to identify the forum in which the case can suitably be tried for the interests of all parties

24. Lord Davey in Chemische Fabrik Vormals Sandoz v. Badische Anilin Und Soda Fabriks (1904) 90 L. T. 733, 735. The phrase appears to be first reported in Socit Gnrale de Paris v. Dreyfus Brothers, 29 Ch D 239. 25. See Seaconsar Far East Ltd case [1994] 1 A.C. 438. 26. Canada Trust Co. and Others v. Stolzenberg and Others (No. 2) [1998] 1 W.L.R. 547. 27. Ibid. 28. See what Stuart-Smith LJ said in Seaconsar Far East Ltd case in Court of Appeal, and approved by the House of Lords, per Lord Goff of Chieveley. 29. [2006] WL 2850944.

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and for the ends of justice.30 In Rosler v. Hilbery,31 the Court of Appeal held in deciding whether or not it will exercise its discretion the Court pays attention to a great number of matters, in particular it would pay attention to what is the forum conveniens. The court must take the nature of the dispute, the legal and practical issues involved, such questions as local knowledge, availability of witnesses and their evidence, and expense32 into account. However, the importance of these factors may vary from case to case.33 In Trafigura Beheer B.V. v. Kookmin Bank Co.,34 Mr. Justice Cooke regarded the governing law as the decisive factor on the ground that there might be little factual evidence which is required for determination of the points in issue;35 while in The Islamic Republic of Pakistan v. Asif Ali Zardari, Romina Properties Limited, Winkford Farm Limited, Parsonage Farm Limited,36 the court held the existence of parallel proceedings in another jurisdiction between the same parties is a relevant, and frequently an important, or even decisive, factor in the determination of the appropriate forum.37 In Spiliada Maritime Corporation v. Cansulex Ltd,38 the House of Lords held that application of the principle of forum conveniens was almost the same as that of forum non conveniens. Then, the principle of forum conveniens, as the principle of forum non conveniens, only applies to the situation where an English court is invited to hold that a court of Scotland or Northern Ireland is a more appropriate forum or where an action is brought in England against a defendant where the Conventions and the Judgments Regulation do not apply. This is because they contained no provision which suggested that their operation was subject to a jurisdiction discretion which was a part of the common law but not generally known to civilian systems.39 Unlike forum non conveniens which imposes the burden of proof on the defendant, the burden of proof for forum conveniens should be on the claimant who should persuade the court that England is clearly the appropriate forum. It is worth mentioning that each party will seek to establish the existence of certain matters which will

30. La Socit du Gaz de Paris v. La Socit Anonyme de Navigation Les Armateurs Franais Paris (1925) 23 Ll. L. Rep. 209. 31. [1925] Ch. 250. 32. Lord Wilberforce in Amin Rasheed Shipping Corporation v. Kuwait Insurance Co., (The Al-Wahab), [1983] 2 Lloyds Rep. 365. 33. Spiliada Maritime Corporation v. Cansulex Ltd., [1987] 1 Lloyds Rep. 1. 34. [2005] EWHC 2350 (Comm); abstracted at 2006 ANNUAL SURVEY 458. 35. Ibid. 36. [2006] EWHC 2411. 37. Ibid. 38. [1987] A.C. 460. 39. See Sir L. Collins, Dicey, Morris & Collins on the Conflict of Laws (14th Edition, Sweet & Maxwell, 2006), 12-017. It should be the same for the Lugano Convention and the Judgments Regulation.

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assist him in persuading the Court to exercise its discretion in his favour.40 So, in practice, the defendant may also provide evidence to show that England is not the natural or appropriate forum for the trial, and to establish that there is another available forum which is clearly or distinctly more appropriate than the English forum.41 All in all, it is clear that the court when it decides whether to give leave to serve out of jurisdiction should consider whether there is a reasonable prospect of success and whether the forum is appropriate altogether. Both tests should be satisfied. In Seaconsar, Lord Goff of Chieveley said: Suppose that, for example, the plaintiffs case is very strong on the merits. If so, I cannot see that a case particularly strong on the merits can compensate for a weak case on forum conveniens. Likewise, in my opinion, a very strong connection with the English forum cannot justify a weak case on the merits, if a stronger case on the merits would otherwise be required. In truth, as I see it, the two elements are separate and distinct.
40. [1987] 1 Lloyds Rep. 1. 41. Ibid.

Main Differences in Two Sets of Rules As far as two sets of rules for jurisdiction are concerned, two differences need to be addressed. First, the court under the English traditional rules has broader jurisdiction than that under the Conventions and the Regulation. This is because the court can exercise its jurisdiction in the situation where the defendant is present within jurisdiction, by himself or through an agent in the former set. The defendant can be sued in the UK no matter how fleeting he is present in jurisdiction. On the contrary, the rule of domicile laid down in the latter set which requires the defendant to have an official, legal, or major business address in the UK. Another important difference between two sets of rules is that one set (i.e. two European Conventions or the Judgments Regulation) emphasizes on the legal certainty of jurisdiction and precludes forum non conveniens from being applied while another one gives much more concern to legal and commercial suitability so that a court should consider forum non conveniens in allowing a service out of jurisdiction. The first difference would

impose few influences on letters of credit since as mentioned above few parties initiate the proceedings according to these rules in practice. However, if a claimant of a member state of the Convention or the Regulation sues two defendants (one is domiciled in a member state while another one is not) in an English court, the English court has to determine jurisdiction according to two sets of rules respectively. The situation would be the same as regards the second difference, and may produce more complexities since the court enjoys great discretionary power under the traditional rules and therefore brings uncertainty in determining jurisdiction. Such a situation would increase legal costs and produce difficulties in determining jurisdiction. Therefore, it may increase the possibility that the parties concerned might avoid pursuance of suit through legal procedures in the UK due to this complication. The best approach is to harmonize these two sets of rules for jurisdiction, like the rules for the governing law which used to be two different sets of rules as that for jurisdiction, but now are tending more and

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more to be the same since the rules of common law are largely replaced by the Rome Convention. After all, harmonization is the trend for the purpose of reducing legal conflicts and cost. However, from the reform of CPR in 2008 which does contain a similar rule for service in present as well as for service out of jurisdiction as that in former rules. It is likely that two sets of rules for jurisdiction will remain in the foreseeable future. relationship, it does not mean all disputes between above two parties are contractual. In certain cases, the nature of disputes would be tortious. Therefore, the issue in disputes is not governed by sub-article 5(1) which deals with matters relating to a contract only, but by subarticle 5(3) of the Judgments Regulation. This is so for other contractual relationships under a letter of credit. In the second set of rules, the court could exercise its jurisdiction in the situation where the defendant is present within jurisdiction, by himself or through an agent. It is worth mentioning that the advising bank which is appointed by the issuing bank to advise the credit only is not the agent of the issuing bank to make a payment. Accordingly, the beneficiary cannot sue in his own country merely because the advising bank is in his country. Furthermore, the legal consideration gives to the forum conveniens which is the necessary condition to obtain permission for a service out of jurisdiction even though there is a reasonable prospect of success. The principle of forum conveniens may enable the case to be heard in an appropriate court but increase uncertainty to the decision since great discretion power is imposed on the courts. Therefore, it becomes one major impediment to the harmonization of the two sets of rules. It is easy to draw that two sets of rules for jurisdiction which apply to different scopes contain essential differences. For letters of credit, the conflicts between two sets of rules easily occur since more than three parties are involved in this international payment mechanism. For this consideration, it is urgent to call for harmonization of these two sets of rules for the sake of reducing legal costs and conflicts.

Conclusion In two European Conventions and the Judgments Regulation, the claimant under a letter of credit can choose the place where the defendant domiciles or the place of the payment to sue. However, attention should be given to the nature of issue in dispute (e.g. whether the issue in dispute is contractual or tortious). Even though the beneficiary and the issuing bank have a contractual

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ICC OPINIONS

ICC OPINION TA675REV (UCP600)


SPRING 2009
Scope of Opinion:
Interpretation of clause in bill of lading and, incidentally, UCP600 Article 20(a)(v).

Query Summary:
LC required bills of lading conveyed to order and blank endorsed. It also stated LC requirement: Bills of lading that on their face indicate that goods may be released without presentation of an original bill of lading are not acceptable. B/L presented contained extreme pre-printed wording above the carriers signature including the following statement: Where the bill of lading is non-negotiable, the Carrier may give delivery of the Goods to the named consignee upon reasonable proof of identity and without requiring surrender of an original bill of lading. Where the bill of lading is negotiable, the Merchant is obliged to surrender one original, duly endorsed, in exchange for the Goods.

Question:
Whether the clause in the bill of lading violates the prohibition in the LC?

Summary of ICC Opinion:


A clause in pre-printed text of a bill of lading provides for release of the goods without presentation of an original in the case of a non-negotiable bill of lading is not a basis for refusal since it is part of the Terms & Conditions of carriage. However, the Opinion also notes that pursuant to the Terms & Conditions, the provision for surrender of the goods without the original bill of lading would be inapplicable since the bill of lading at issue was negotiable.

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ICC OPINIONS

Comment:
It is unclear from the Opinion whether it is based on the prohibited text not being examined because it is a Term & Condition not to be examined or because the clause is inapplicable to an order bill of lading. The body of the Opinion suggests the former but the final sentence suggests the latter.

What Does This Opinion Mean for LC Specialists?


There has long been doubt as to what constituted a Term & Condition within the meaning of the various transport document articles and more doubt about what could be disregarded. If the reason for the Opinion rested on it being a Term & Condition, the same term regarding a negotiable B/L would not be a basis for refusal. Clarification here is desirable.

UCP600: An Analytical Commentary


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January 2010 Documentary Credit World 33

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TEXT

ADMINISTRATION SCIENCE PARK ADMINISTRATION (TAIWAN) (TAIWAN) V. STANDARD CHARTERED (TAIWAN) STANDARD CHARTERED BANK (TAIWAN) LIMITED*
Supreme Court of Republic of China Civil Judgment File No: 98 XX 1925 Date: 2009-10-15 Claim: refund security deposit
Supreme Court of Republic of China, Civil Judgment, 98 XX 1925. Appellant Standard Chartered Bank (Taiwan) Limited (Attorney Binghuang Zhang, Riquan Zhu) Appellee Science Park Administration (Taiwan) (Attorney Qinyuan Cai, Shaoying Wei, Peixuan Li) Prior History: The appellant appealed from the second instance decision of Taiwan High Court (98 XX 176) [which had reversed the decision of the trial court]. The Supreme Court dismissed the appeal with appellant bearing all expenses. Opinion: The appellee alleges that: It entered into a construction contract (the contract) with a third party Zhipin Tech. Ltd. (Zhipin) on 12 December 2005, designating Zhipin as a contractor to work on the two stages sewage expansion project (sewage project) of the four phases Zhunan Base development project in Yiyuan District. According to the contract and the construction tender regulation, Zhipin should submit a security deposit to ensure its contract performance. The appellant, formally known as Hsinchu International Bank, guaranteed the security deposit and issued a performance guarantee for an amount of NT$85,987,039 (the guarantee). On 15 June 2007, Zhipin requested the appellee to release its liability of the outstanding balance, 75% of the guarantee amount (NT$64,490,179). Since the actual completion date of the inflow station (30 April 2006) was later than the due date in the contract (17 March 2006),

* Allignment of the parties in the trial court decision. DCW has been informed that it is not customary to label cases by the party names in Taiwan.

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and the major part of the project was not completed, the appellee rejected the request. At the same time, the appellee notified the project supervisory company, CECI Engineering Consultants, Inc. Taiwan (CECI) on 26 June 2007 to compute the overdue penalty and the relevant outstanding unclaimed charges, noting that if the relevant outstanding unclaimed charges were not sufficient to pay for the penalty, the appellee would make a claim from the guarantee amount according to the contract. It was also reminded that the expiry date of the guarantee was pending, and requested that the expiry date of the guarantee to be extended as soon as possible. A copy of the guarantee was sent to the appellant and Zhipin as well. However, Zhipin was in breach of its contractual obligation by not extending the expiry date in time. On 4 June 2008, the appellee wrote to the appellant, demanding that the appellant perform its obligation under the guarantee and claiming the amount of NT$64,490,179. The appellant refused to make payment on the ground that the guarantee had expired. The appellee sued the appellant for the payment pursuant to the guarantee,

with interest calculated from 6 June 2008. The appellant contended that: Provision 4 of the guarantee designated that the payment obligation of the appellant was from the date of issuance until the expiry date, 30 June 2007. The appellant bore no obligation after the expiry date. The demand for payment under the guarantee was made on 4 June 2008 and was after the expiry date. This was the reason that the appellant refused payment under the guarantee. After reviewing the whole issue and evidence, the first instance [trial] court observed that1: It was an undisputed fact between the two parties that the appellant issued a guarantee in favour of the appellee on behalf of Zhipin. The guarantee worked as a performance security deposit for the sewage project, which was evidenced by the relevant parts of the contract, the tender regulation, the guarantee and relevant documents. The appellant conceded the above. Though its contention was based on

the above, the provisions 1 and 2 in the guarantee wrote that: since Zhipin contracted with the administration on the sewage project, in pursuant to the tender documents, Zhipin shall deposit with the administration a performance security depositsuch performance security deposit was guaranteed by the guarantee issued by the bank; in accordance with the provisions stated in the tender document and the contract, if the administration affirms that the security deposit should not be refunded, the administration shall notify the bank by a written document, and the bank shall immediately make payment to the administration in the amount stated in the written document not exceeding the total amount of the guarantee , without shifting any responsibility and delay. It is clear that, according to the tender document, Zhipin should deposit with the appellee a performance security deposit as an assurance of its performance before execution of the contract. Considering that the contractor may not be able to provide such huge amount of money as a performance security deposit, or such deposit may hinder the liquidity of the contractor, the

1. The original text in Chinese words showed yuan shen, meaning original trial, but this must be a typographical error, since the last sentence of this portion of the opinion (stating that for reasons stated in that portion of the decision of the first instance court was reversed) suggests that the portion of the opinion is a summary of the decision of the intermediate appellate court. One would not expect the trial court to have explained why it should be reversed.

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appellee accepted a related guarantee to be issued by a bank as a substitute for the cash deposit. Therefore, the guarantee was an assurance of the performance by Zhipin, rather than an assurance for the damages resulted from the breach of contract. It was recognized that the guarantee issued by the appellant was a promise of payment, which differed from that in the accessory guarantee or suretyship under the civil law system. Provision 7(9) in the contract provided that if Zhipin could not perform its duty within the time limit as stated in the contract, or if the project could not be examined and accepted [by the administration]within the validity of the security deposit due to the fault of Zhipin, the validity of the security deposit should be extended in accordance with the period of the delay. Provision 7(8) provided that if Zhipin could not extend the validity of the security deposit in pursuant to the contract, the security deposit not being extended would not be refunded. On 26 June 2007, in the notice sent to the supervisory company, CECI, with copies sent to the appellant and Zhipin, the appellee noted that first, in its letter of 15 June 2007, the contractor, Zhipin, requested the release of its advance payment liability; second, in accordance with the

assessment by your designing unit, part of the sewage project.we agree to extend the deadline for 90 days for part of the project... the project may not be completed in time, you are requested to compute the overdue penalty and the relevant outstanding unclaimed charges immediately. If the relevant outstanding unclaimed charges are not sufficient to pay for the overdue penalty, the administration would deduct the amount from the performance security deposit according to the agreement. In addition, the expiry date of the performance security is impending, please request the contractor to extend the date immediately for the benefit of the administration. Since Zhipin failed to perform before the deadline, it should have extended the validity of the performance security according to the contract. As it failed to apply for the extension of the guarantee even after the appellees notice, it is sufficient to decide that Zhipin was in breach of the provision 7(8) of the contract, and there is no doubt that the performance security deposit shall be forfeited. In addition, provision 4 of the guarantee provided that the validity period of the guarantee is from its date of issuance to 30 June 2007. The provision did not intend to indicate that the guarantee is

ineffective after the expiry date, but to mean that Zhipin should perform within the validity period. The appellant claimed that in accordance with the provision 4, the appellee had no right to demand payment under the guarantee after 30 June 2007. The appellants claim could not be accepted. Zhipin used the guarantee as a substitute for the performance security deposit, and thus the guarantee was an undertaking to make payment. As Zhipin had failed to make payment of the performance security deposit before the expiry date provided by provision 3, and the appellant did not dispute the fact that the appellee had demanded for payment on 4 June 2008, the appellee has met all payment conditions of the guarantee. Therefore, the appellees demand for payment in the amount of NT$64,490,279 with interest from 6 June 2008 was proper. Appellants other allegations were also dismissed with propriety and would not be discussed in details. Thus, the first instance trial courts decision was reversed and judgment was entered as described above. [Supreme Court held that:] In interpreting the terms of a contract, all intents and purposes of the parties should be explored. Courts should view a contract in its totality,

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considering all other evidences including circumstances before and around the execution of the contract and customs in similar transactions. The decision should follow the experience and customs and it should be predicated on principles of honest. Courts should also consider a contract in view of its underlying facts, purposes, economic value, social recognition and the legal effect the parties intended to achieve. On the other hand, courts should not confine themselves to the exact expression of the terms or adjudicate upon the interpretation of only several terms in the contract, which may lead to a deviation of interpretation from parties true intent. Based on the interpretation of the contract, the guarantee and other documents and letters, Zhipin was found in breach of the provision 7(8) of the contract before the expiry date of the guarantee, and the condition to forfeit the performance security deposit was met. The appellee requested payment from the appellant on 4 June 2008 and the expiry date stated in the provision 4 of the guarantee did not mean that the guarantee would be ineffective after the expiry date. Zhipin used the guarantee as a substitute for the performance security deposit, and thus the guarantee was an undertaking

to pay. The conditions of the performance security deposit had been met by the appellee. The decision unfavorable to the appellant is consistent with the intent of the agreements and is thus legally proper. In addition, the appellee contended in its response that the appellant had an obligation to pay under the guarantee if Zhipin failed to perform before the project deadline and the conditions to forfeit the performance security deposit were met in accordance with the contract. The interpretation of the expiry date in provision 4 of the guarantee is proper and it does not contradict with the principle of adversary system. The validity of the guarantee means the performance period of Zhipin, and Zhipin failed to provide a performance security deposit in cash within the validity period. The performance period is different from the project deadlines agreed between the appellee and Zhipin, which are 17 March 2006 and 7 April 2007. The above argument contains no contradiction with the evidence. Based on the above argument, in correcting the first instance trial decision, the appellate court reasoned that: The appellee claimed that the validity period of the guarantee prescribed the period within which Zhipin was in breach of the contract. The first instance trial court

nevertheless held that the validity period prescribed the period within which payment must be made, which was contradictory to the otherwise designated validity period of guarantee payment and the contract performance deadline of 17 March 2006 and 7 April 2007. Thus, the first instance trial courts holding was contradictory with the principle of adversary system and inconsistent with the parties intent and purpose. In addition, in view of the rules governing other kinds of security deposits, the first instance trial courts decision that the validity period of the guarantee was the period within which payment undertaking was to be made is inconsistent with the customs and theories of security deposits. The first instance trial decision is improper and without reason, and thus reversed. Accordingly, we hereby dismissed the appeal as no cause. According to Civil Procedure Code 481, 448 (1) (78), judgment is entered. 2009-10-15 Supreme Court the Fifth Civil Court Jiannan Zhu J. (Presiding judge) Nanquan Yan J. Dayang Lin J. Fangwei Shen J. Biyu Chen J.

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STA STATISTICS
US BRANCHES/AGENCIES OF NON-US BANKS
DCW reports the most current data on top US branches and agencies of non-US banks in terms of LC activity. Net Standby LCs reflect net after subtracting respective amounts conveyed to others. Net LCs reflect totals for Net Standby LCs and Commercial & Similar LCs. Note: Numbers are in US$ 1,000s.

3RD QUARTER 2009


Rank Institution City State Standby LCs to US Addresses Standby LCs to Non-US Addresses Net Standby LCs Commercial & Similar LCs Net Letters of Credit

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

DEXIA CREDIT LOCAL NY BR NEW YORK LLOYDS TSB BK PLC NY BR NEW YORK DEUTSCHE BK AG NY BR NEW YORK BANK OF NOVA SCOTIA NY AGY NEW YORK LANDESBANK HESSN-THRN NY BR NEW YORK BANK TOK-MIT UFJ NY BR NEW YORK BAYERISCHE HYPO VEREINS NY BR NEW YORK BNP PARIBAS EQUITABLE TWR BR NEW YORK ABN-AMRO BK NV CHICAGO BR CHICAGO BAYERISCHE LANDESBANK NY BR NEW YORK INTESA SANPAOLO SPA NY BR NEW YORK ALLIED IRISH BKS NY BR NEW YORK ROYAL BK OF SCOTLAND PLC NY BR NEW YORK MIZUHO CORPORATE NY BR NEW YORK BANCO SANTANDER SA NY BR NEW YORK ROYAL BK OF CANADA LIB PL BR NEW YORK BNP PARIBAS SF BR SAN FRAN. SUMITOMO MITSUI BKG NY BR NEW YORK STANDARD CHARTERED BK NY BR NEW YORK SOCIETE GENERALE NY BR NEW YORK BARCLAYS BK PLC PARK AVE BR NEW YORK LANDESBK BADN WUERTTMB NY BR NEW YORK CALYON NY BR NEW YORK SVENSKA HANDELS AB PUBL NY BR NEW YORK WESTLB AG NY BR NEW YORK KBC BANK NV NY BR NEW YORK UBS AG STAMFORD BR STAMFORD FORTIS BK SA/NV NY BR NEW YORK COMMERZBANK AG NY BR NEW YORK NATIXIS NY BR NEW YORK ROYAL BK OF CANADA MIAMI BR MIAMI BANK OF NOVA SCOTIA HOU BR HOUSTON AUSTRALIA & NEW ZEALAND NY BR NEW YORK RABOBANK NEDERLAND NY BR NEW YORK BANK OF MONTREAL CHICAGO BR CHICAGO BANCO BILBAO VIZCAYA NY BR NEW YORK NORDEA BK FINLAND PLC NY BR NEW YORK BNP PARIBAS HOUSTON AGY HOUSTON BANK OF SCOTLAND PLC NY BR NEW YORK CREDIT INDUS ET CMRL NY BR NEW YORK ARAB BK PLC NY AGY NEW YORK BNP PARIBAS CHICAGO BR CHICAGO CREDIT SUISSE NY BR NEW YORK RIYAD BK HOU AGY HOUSTON UNICREDITO ITALIANO NY BR NEW YORK

NY NY NY NY NY NY NY NY IL NY NY NY NY NY NY NY CA NY NY NY NY NY NY NY NY NY CT NY NY NY FL TX NY NY IL NY NY TX NY NY NY IL NY TX NY

35,474,598 9,425,567 10,874,741 10,316,149 6,659,941 6,662,310 7,046,959 9,632,043 6,825,868 6,802,016 5,103,253 6,725,697 6,895,234 4,865,319 4,431,223 4,118,383 6,905,790 3,814,177 2,526,958 4,447,307 4,230,654 4,046,307 4,208,140 1,712,794 3,008,982 2,709,554 2,269,297 3,260,887 2,083,189 1,784,209 50,057 2,409,101 1,699,976 1,774,478 1,310,884 1,156,542 911,532 1,456,213 949,954 705,972 775,323 1,008,131 300,286 488,757 425,801

1,153,223 2,258,748 1,750,656 997,656 2,627,083 2,405,835 588,307 1,588,142 1,057,932 325,072 782,864 75 580,730 812,305 204,901 878,835 148,481 805,331 1,319,134 373,078 584,083 251,414 825,647 964,777 72,172 10,036 572,403 63,351 275,593 434,915 2,193,868 351,785 186,689 450,756 882,914 110,214 288,219 45,149 0 34,700 0 2,264 465,405 150,000 212,131

36,256,759 11,684,315 11,142,141 10,341,328 9,169,135 8,777,455 7,358,500 7,206,810 7,186,558 6,675,391 5,886,117 6,543,174 6,481,581 5,650,328 4,612,844 4,460,558 4,339,577 4,177,860 3,292,673 4,122,855 3,092,387 4,003,570 3,332,842 2,677,571 3,081,154 2,719,590 2,601,623 2,520,557 2,355,648 2,219,124 2,243,925 2,191,301 1,797,712 1,657,906 1,595,137 1,266,756 1,199,751 1,093,800 949,954 740,672 732,222 700,688 692,734 638,757 637,932

0 36,033 383,566 42,628 0 136,555 289,288 436,630 91,204 0 780,503 0 0 56,307 11,386 618 1,902 83,014 885,588 44,773 918,094 0 33,959 473,010 0 162,553 1,693 9,890 40,362 69,079 2,342 26,203 7,565 36,377 36,694 243 0 2,938 0 0 1,875 0 0 444 0

36,256,759 11,720,348 11,525,707 10,383,956 9,169,135 8,914,010 7,647,788 7,643,440 7,277,762 6,675,391 6,666,620 6,543,174 6,481,581 5,706,635 4,624,230 4,461,176 4,341,479 4,260,874 4,178,261 4,167,628 4,010,481 4,003,570 3,366,801 3,150,581 3,081,154 2,882,143 2,603,316 2,530,447 2,396,010 2,288,203 2,246,267 2,217,504 1,805,277 1,694,283 1,631,831 1,266,999 1,199,751 1,096,738 949,954 740,672 734,097 700,688 692,734 639,201 637,932

38 Documentary Credit World January 2010

Cover

STA STATISTICS

Rank

Institution

City

State

Standby LCs to US Addresses

Standby LCs to Non-US Addresses

Net Standby LCs

Commercial & Similar LCs

Net Letters of Credit

46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95

HSH NORDBK AG NY BR NEW YORK DNB NOR BK ASA NY BR NEW YORK DZ BK AG DEUTSCHE ZENTRA NY BRNEW YORK MEGA INTL CMRL BK CO NY BR NEW YORK DEPFA BK PLC NY BR NEW YORK NORDDEUTSCHE LANDSBNK NY BR NEW YORK BANK OF CHINA NY BR NEW YORK NATIONAL AUSTRALIA BK NY BR NEW YORK NATIONAL BK KUWAIT SAK NY BR NEW YORK MEGA INTL CMRL BK LA BR L. ANGELES TORONTO-DOMINION BK NY BR NEW YORK ABU DHABI INTL BK WA BR WASH. WESTPAC BKG CORP NY BR NEW YORK ICICI BK NY BR NEW YORK UNITED OVERSEAS BK NY AGY NEW YORK BANK TOK-MIT UFJ SEATTLE BR SEATTLE ARAB BKG CORP NY BR NEW YORK EUROHYPO AG NY BR NEW YORK T C ZIRAAT BANKASI AS NY BR NEW YORK BANK HAPOALIM BM NY BR NEW YORK STATE BK OF INDIA NY BR NEW YORK CANADIAN IMPERIAL BK NY AGY NEW YORK BANK TOK-MIT UFJ CHICAGO BR CHICAGO UBS AG PARK AVE BR NEW YORK BANCA MONTE DEI PASCHI NY BR NEW YORK BANCO ESPIRITO SNTO CMR NY BR NEW YORK BANCO ESPANOL CREDITO NY BR NEW YORK MIZUHO CORPORATE BK LA BR L. ANGELES GULF INTL BK NY BR NEW YORK BANK TOK-MIT UFJ LA BR L. ANGELES NATIONAL BK EGYPT NY BR NEW YORK BANK TOK-MIT UFJ SF BR SAN FRAN. TAIPEI FUBON CMRL BK CO LA BR L. ANGELES BANK OF CMNTNS NY BR NEW YORK FIRST CMRL BK NY AGY NEW YORK MEGA INTL CMRL SILICON VALL BR SAN JOSE CHANG HWA CMRL BK NY BR NEW YORK TAIWAN BUS BK LA BR L. ANGELES LAND BK OF TAIWAN LA BR L. ANGELES BANCO DO BRASIL SA NY BR NEW YORK BANCO DE SABADELL SA MIAMI BR MIAMI BANCO NACION ARGNTNA NY BR NEW YORK CHANG HWA CMRL BK LA BR L. ANGELES HUA NAN CMRL BK NY AGY NEW YORK BANK OF BARODA NY BR NEW YORK CAJA DE AHORROS Y MNT MIA AGY MIAMI KOREA DEVELOPMENT BK NY BR NEW YORK COMMONWEALTH BK AUS NY BR NEW YORK FIRST CMRL BK LA BR L. ANGELES E SUN CMRL BK LA BR INDUSTRY

NY NY NY NY NY NY NY NY NY CA NY DC NY NY NY WA NY NY NY NY NY NY IL NY NY NY NY CA NY CA NY CA CA NY NY CA NY CA CA NY FL NY CA NY NY FL NY NY CA CA

818,104 426,251 599,893 65,783 573,486 564,694 428,777 321,146 340,995 15,453 149,915 366,877 279,946 285,128 203,308 108,389 24,203 607,602 207,879 202,393 71,312 257,324 182,453 58,325 131,446 116,327 0 102,675 100,782 95,476 39,894 79,054 79,865 76,569 74,016 65,761 64,431 63,261 63,114 52,183 18,572 0 0 54,210 4,616 33,792 9,708 50,259 42,056 45,276

1,374 238,100 15,921 850 0 5,780 16,263 42,615 5,600 0 249,230 0 7,249 0 65,827 0 134,753 5,112 10,095 2,066 131,992 1,572 107,635 1,921 0 112,066 527 0 1,648 5,459 635 0 240 0 0 0 0 0 7,328 38,943 6,117 0 0 46,150 20,067 40,279 0 0 0

605,162 623,439 615,814 66,633 573,486 570,474 422,899 363,761 334,865 15,453 310,666 291,978 287,195 285,128 269,135 108,389 158,956 225,108 217,974 204,459 203,304 192,333 182,453 165,960 132,870 116,327 112,066 102,478 100,782 97,124 45,353 79,689 79,865 76,809 74,016 65,761 64,431 63,261 63,114 59,511 57,515 6,117 0 54,210 50,766 53,859 49,987 50,259 42,056 45,276

25,785 0 0 511,200 0 0 8,164 0 5,842 310,908 0 506 0 9 0 140,036 75,905 0 2,700 15,501 8,279 0 1,232 685 0 0 0 5,144 187 1,041 42,975 550 56 302 483 2,103 0 0 0 2,311 325 49,970 54,701 0 3,153 0 2,867 0 7,786 0

630,947 623,439 615,814 577,833 573,486 570,474 431,063 363,761 340,707 326,361 310,666 292,484 287,195 285,137 269,135 248,425 234,861 225,108 220,674 219,960 211,583 192,333 183,685 166,645 132,870 116,327 112,066 107,622 100,969 98,165 88,328 80,239 79,921 77,111 74,499 67,864 64,431 63,261 63,114 61,822 57,840 56,087 54,701 54,210 53,919 53,859 52,854 50,259 49,842 45,276

January 2010 Documentary Credit World 39

Cover

STA STATISTICS

Rank

Institution

City

State

Standby LCs to US Addresses

Standby LCs to Non-US Addresses

Net Standby LCs

Commercial & Similar LCs

Net Letters of Credit

96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145

DOHA BK NY BR ABN-AMRO BK NV NY BR NORINCHUKIN BK NY BR CAIXA GERAL DE DEPOSITOS NY BR SUMITOMO TR BKG NY BR WOORI BK NY AGY CHIBA BK NY BR NATIONAL BK OF PAKISTAN NY BR BANCO LATINOAMERCNO NY AGY HANA BK NY AGY SHINHAN BK NY BR DBS BK LA AGY BANCO DO BRASIL SA MIAMI AGY MASHREQBANK PSC NY BR NATIONAL BK OF CANADA NY BR TORONTO-DMINION BK HOU AGY CHINATRUST COMMRCL BK NY BR BANCO DE CREDITO E INV MIA BR HUA NAN CMRL BK LA BR BANCO POPULAR ROCK CENT BR MALAYAN BKG BERHAD NY BR CATHAY UNITED BK LA AGY TAIWAN CO-OP BK LA BR LLOYDS TSB BK PLC MIAMI AGY OVERSEA-CHINES BKG CRP NY AGY INDUSTRIAL CMRL BK OF NY BR SHANGHAI CMRL BK NY BR UNITED OVERSEAS BK LA AGY MIZRAHI TEFAHOT BK LA BR BANCO D ESTADO D CHILE NY BR WOORI BK LA BR DESJARDINS HALLANDALE BR ROYAL BK OF SCOT GRNWCH BR BNP PARIBAS MIAMI AGY UBS AG MIAMI BR ROYAL BK OF CANADA NY BR BANCO INTERNACIONAL MIA AGY BANK OF CHINA LA BR BANK OF INDIA NY BR BANCO BRADESCO SA NY BR BANK EAST ASIA NY WHOLESALE BR BANK HAPOALIM BM MIAMI BR SHIZUOKA BK NY BR SHANGHAI CMRL BK LA BR GUNMA BANK NY BR SHANGHAI CMRL BK SF BR GOVERNOR&CO BK IR STMFRD BR NANYANG CMRL BK SF BR STATE BANK INDIA CHICAGO BR TURKIYE VAKIFLAR BK NY BR

NEW YORK NEW YORK NEW YORK NEW YORK NEW YORK NEW YORK NEW YORK NEW YORK NEW YORK NEW YORK NEW YORK L. ANGELES MIAMI NEW YORK NEW YORK HOUSTON NEW YORK MIAMI L. ANGELES NEW YORK NEW YORK L. ANGELES L. ANGELES MIAMI NEW YORK NEW YORK NEW YORK L. ANGELES L. ANGELES NEW YORK L. ANGELES HALLANDLE STAMFORD MIAMI MIAMI NEW YORK CRL GABLES L. ANGELES NEW YORK NEW YORK NEW YORK AVENTURA NEW YORK ALHAMBRA NEW YORK SAN FRAN. STAMFORD SAN FRAN. CHICAGO NEW YORK

NY NY NY NY NY NY NY NY NY NY NY CA FL NY NY TX NY FL CA NY NY CA CA FL NY NY NY CA CA NY CA FL CT FL FL NY FL CA NY NY NY FL NY CA NY CA CT CA IL NY

0 0 42,078 39,401 33,431 6,066 40,177 2,108 0 28,278 30,759 26,139 2,528 0 65,264 47 33,789 2,060 32,835 30,636 28,070 28,591 26,231 0 3,928 22,957 2,534 20,195 4,500 0 13,700 18,501 18,191 0 0 12,155 0 28,447 6,641 101 13,638 765 10,850 544 10,400 5,669 9,688 9,202 17,363 0

2,470 42,692 0 2,054 7,176 28,672 0 0 14,675 0 0 6,441 7,751 0 6,731 131,602 224 26,454 0 0 0 0 0 24,935 0 0 0 0 0 20,000 463 0 0 17,256 16,117 4,948 5,592 0 6,000 45 0 10,982 0 3,000 0 0 0 0 0 476

2,470 42,692 42,078 41,455 40,607 34,738 40,177 2,108 14,675 28,278 30,759 32,580 10,279 0 35,218 0 34,013 28,514 32,835 30,636 28,070 28,591 26,231 24,935 3,928 22,957 2,534 20,195 4,500 20,000 14,163 18,501 18,191 17,256 16,117 17,103 5,592 4,263 12,641 146 13,638 11,747 10,850 3,544 10,400 5,669 9,688 9,202 8,845 476

40,378 0 0 0 0 5,777 0 37,589 24,516 9,695 7,042 5,077 27,237 36,880 44 34,955 0 4,546 175 0 885 0 0 0 19,303 0 19,077 548 16,036 0 5,291 0 0 883 1,937 0 11,449 10,506 1,940 13,690 0 1,339 0 6,928 0 4,164 0 228 264 8,322

42,848 42,692 42,078 41,455 40,607 40,515 40,177 39,697 39,191 37,973 37,801 37,657 37,516 36,880 35,262 34,955 34,013 33,060 33,010 30,636 28,955 28,591 26,231 24,935 23,231 22,957 21,611 20,743 20,536 20,000 19,454 18,501 18,191 18,139 18,054 17,103 17,041 14,769 14,581 13,836 13,638 13,086 10,850 10,472 10,400 9,833 9,688 9,430 9,109 8,798

40 Documentary Credit World January 2010

Cover

STA STATISTICS

Rank

Institution

City

State

Standby LCs to US Addresses

Standby LCs to Non-US Addresses

Net Standby LCs

Commercial & Similar LCs

Net Letters of Credit

146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187

CAJA DE AHORROS DE VAL MIA BR BANK SINOPAC LA BR BANK OF TAIWAN LA BR BANCO IND DE VENEZLA MIA AGY BANK TOK-MIT UFJ HOU AGY BANCO IND DE VENEZLA NY AGY UNITED BK AFRICA NY BR INDUSTRIAL BK OF KOREA NY BR MITSUBISHI UFJ TR & BKG NY BR SWEDBANK AB NY BR SHOKO CHUKIN BK NY BR BANCOLOMBIA SA MIAMI AGY BANCO DE BOGOTA SA MIAMI AGY BARCLAYS BK PLC LA AGY STATE BK OF INDIA LA AGY BANGKOK BK PUBLIC CO NY BR KOOKMIN BK NY BR MEGA INTL CMRL BK CHICAGO BR BANK OF EAST ASIA NY BR BANCO DE CRE CORAL GABLES AGY CAIXA DE AFORROS MIAMI BR BANCO PICHINCHA CA MIAMI AGY BANCO DE LA NACION MIA AGY CITIC KA WAH BK NY BR P T BK NEGARA INDO PER NY AGY HABIB BK NY BR PHILIPPINE NB LA BR TAIWAN CO-OP BK SEATTLE BR METROPOLITAN B&TC NY BR BANCO REPUBLICA ORIENTL NY BR OVERSEA-CHINESE BKG LA AGY BANK OF INDIA SF AGY WING LUNG BK LA BR CITIC KA WAH BK LA BR BANK HAPOALIM BM PLAZA BR KRUNG THAI BK LA AGY P T BK RAKYAT INDONESIA NY AGY MERCANTIL CA CRL GABLES AGY BANCO ITAU SA NY BR CHONG HING BK SF BR BANK OF E ASIA LA BR BANK OF TAIWAN NY AGY TOTALS

MIAMI FL L. ANGELES CA L. ANGELES CA MIAMI FL HOUSTON TX NEW YORK NY NEW YORK NY NEW YORK NY NEW YORK NY NEW YORK NY NEW YORK NY MIAMI FL MIAMI FL STA MONICA CA L. ANGELES CA NEW YORK NY NEW YORK NY CHICAGO IL NEW YORK NY CRL GABLES FL MIAMI FL MIAMI FL MIAMI FL NEW YORK NY NEW YORK NY NEW YORK NY L. ANGELES CA SEATTLE WA NEW YORK NY NEW YORK NY L. ANGELES CA SAN FRAN. CA ALHAMBRA CA ALHAMBRA CA NEW YORK NY L. ANGELES CA NEW YORK NY CRL GABLES FL NEW YORK NY SAN FRAN. CA ALHAMBRA CA NEW YORK NY

8,460 6,289 6,688 6,819 4,459 2,700 0 4,027 5,067 4,487 3,816 0 20 2,027 7,146 0 1,300 1,259 586 0 791 0 0 0 801 30 750 0 0 0 0 299 250 200 125 0 733 0 25 0 5,265 69,203

182 304 0 0 359 0 0 0 40 0 0 2,500 158 0 0 47 0 0 428 0 985 1,185 0 0 0 0 0 0 338 0 0 0 0 0 0 0 40 8 0 0 0

8,642 6,593 6,688 6,819 4,818 2,700 0 4,027 5,107 4,487 3,816 2,500 178 2,027 0 47 1,300 1,259 586 428 791 985 1,185 0 801 30 750 0 0 338 0 299 250 200 125 0 0 40 33 0 18 0

124 551 197 0 1,842 3,651 5,782 1,237 0 0 0 0 1,953 0 1,886 1,500 238 118 789 943 500 257 0 988 0 768 0 628 438 0 335 0 0 0 0 72 68 0 0 28 0 0

8,766 7,144 6,885 6,819 6,660 6,351 5,782 5,264 5,107 4,487 3,816 2,500 2,131 2,027 1,886 1,547 1,538 1,377 1,375 1,371 1,291 1,242 1,185 988 801 798 750 628 438 338 335 299 250 200 125 72 68 40 33 28 18 0

213,785,611 31,803,617 222,129,750

6,765,616 228,895,366

January 2010 Documentary Credit World 41

Cover

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42 Documentary Credit World January 2010

Cover

SCAM SURVEY

HK Bank Officer Pleads Not Guilty to Accepting Bribes Former Hang Seng Bank marketing officer, Wong Taiwai, pled not guilty before the Court of First Instance in Hong Kong to several charges alleging that he accepted bribes to approve bank loans to Ho Chi-chun and various of his companies. Wong has been charged with seven counts of conspiracy to defraud the bank and seven charges of accepting bribes. Wong is accused of accepting Rolex watches and HK$230,000 (US$29,000) in cash bribes between 1994 and 1997 in return for working with three senior bankers to approve the loans. Wong also allegedly helped devise a scam whereby Hos staff defrauded the bank using 258 forged applications for letters of credit totaling HK$932.85 million (US$117.8m). The Court was presented with evidence that Wong and the three senior bankers were able to secure almost HK$400 million in loans and credit facilities for Hos companies, which were engaged in property speculation. The bribes allegedly persuaded the bankers to hide and maintain the fraud by creating false invoices and documents to apply for trade finance.
(Source: South China Morning Post)

US Attorney General Announces Financial Fraud Enforcement Task Force In prepared remarks given to the Forum Club of the Palm Beaches (Florida), US Attorney General Eric Holder announced a joint initiative intended to address one of greatest and most glaring threats facing our economy: the presence of financial fraud. The Financial Fraud Enforcement Task Force, led by the US Department of Justice, was created by an Executive Order of the President and is intended to coordinate efforts to combat fraud. The simple truth is that financial crimes have become all too common, said Holder, adding to his comments before the Florida audience, Palm Beach is, in many respects, ground zero for the $65-billion Ponzi scheme perpetrated by Bernard Madoff the largest investor fraud case in our nations history. The Task Force will focus on four types of financial crime, according to Holder: mortgage fraud; securities fraud; Recovery Act and rescue fraud; and financial discrimination (including predatory lending practices). The Task Force will leverage criminal and civil enforcement resources with the primary

January 2010 Documentary Credit World 43

Cover

SCAM SURVEY

goal of receiving stolen funds for victims. Holder believes the effort will restore confidence, punish wrong doing, and help get our economy back on track.
(Source: US Dept. of Justice News)

Indonesian High Court Increases Sentence for Fraudster in LC Scam The former majority shareholder of Bank Century (Indonesia) will be serving a longer prison sentence after the High Court in Jakarta disagreed with the lower courts sentence. Though Robert Tantular had previously been sentenced to four years by the Central Jakarta District Court, the High Court found that the ruling was incorrect and increased the sentence to five years. The two courts disagreed how to characterize Tantulars conduct, though both agreed his actions were criminal. Among the incriminating acts he committed were

diverting fictitious letters of credit worth US$178 million, purchasing credits worth Rp364 billion and marked up fund remainders worth US$18 million, said High Court spokesman Andi Samsan Nganro.
(Source: Antara (Indonesia))

Missouri Fraudster Sentenced to 15 Years in Prison Daryl Miles Brown, a Missouri resident, was sentenced to 15 years in prison for his role in a high-yield investment scam alleged to have resulted in more than US$3 million in losses to victims. Brown had been convicted in 2008, partially based on the testimony of an alleged co-conspirator, who had previously pled guilty. As previously reported by DCW (Feb 2009, p. 42), Brown was alleged to have convinced victims to invest in a scam which involved the trading of standby letters of credit. Brown promised investors

returns as high as 20% within 30 banking days but instead withdrew investors money for his own use. Investors were asked to invest in US$50,000 increments in what Brown termed a no lose proposition: the purchase of standby letters of credit. Brown proceeded to trial in December 2008 and was convicted on all but one charge. The US District Court for the Western District of Missouri denied Browns request for a sentence below what the US Federal Sentencing Guidelines suggested and instead imposed a sentence of 15 years. Brown has filed a Notice giving his intent to appeal. One of his alleged coconspirators, Sylvester L. Mitchell, III, pled guilty to his role in the scheme as an employee of Browns company, The Vertical Group, and testified at the trial. Mitchell was sentenced to four years probation.
(Source: US v. Brown, Case No. 05-3052-K-1)

44 Documentary Credit World January 2010

Cover

LC TRADE NEWS

Bank of America, N.A. issued LC backing US$6,500,000 Steelcell of North America, Inc. project, Weekly Variable Rate Industrial Development Revenue Bonds, Series 2009, dated Sep 29, 2009, due Sep 1, 2010 to 2029. Bank of America, N.A. issued LC backing US$33,805,000 various rural housing apartment projects, Variable Rate Multifamily Rental Housing Revenue Bonds, Series 2009B, dated Sep 25, 2009, due Aug 1, 2011. Bank of America, N.A. issued LC backing US$106,100,000 Weekly Variable Rate Measure A Sales Tax Revenue Bonds (Limited Tax Bonds), dated Sep 30, 2009, due Oct 1, 2028 to 2038. Bank of America, N.A. issued LC backing US$79,525,000 Sarasota Memorial Hospital project, Weekly Variable Rate Hospital Revenue Refunding Bonds, Series 2009B, dated Sep 30, 2009, due Jul 1, 2010 to 2037. Bank of America, N.A. issued LCs backing US$16,000,000 Woodfuels Virginia, LLC project, Weekly Variable Rate Demand Revenue Bonds, Series 2009 A-B, dated Oct 8, 2009, due Oct 1, 2024. Bank of America, N.A. issued LC backing US$25,000,000 United Grain Corporation of Oregon Project, Weekly Variable Rate Refunding Revenue Bonds, Series 2009, dated Oct 21, 2009, due Oct 1, 2029. Bank of America, N.A. issued LC backing US$8,500,000 National Bronze and Metals, Inc. project, Weekly Variable Rate Revenue Bonds, Series 2009, dated Oct 23, 2009, due Oct 1, 2029. Bank of America, N.A. issued LC backing US$100,000,000 The Nemours Foundation project, Weekly Variable Rate Revenue Bonds, Series 2009B, dated Oct 15, 2009, due Jan 1, 2013 to 2039. Barclays issued LC backing US$106,100,000 Weekly Variable Rate Measure A Sales Tax Revenue Bonds (Limited Tax Bonds), dated Sep 30, 2009, due Oct 1, 2028 to 2038. Branch Banking & Trust Co. issued LC backing US$9,000,000 Institute for Business and Home Safety (IBHS) project, Weekly Variable Rate Economic Development Revenue Bonds, Series 2009, dated Nov 5, 2009, due Nov 1, 2034. Federal Home Loan Bank of Chicago issued LC backing US$5,500,000 The Hopedale Medical Foundation project, Weekly Variable Rate Demand Revenue Bonds, Series 2009, dated Sep 23, 2009, due Sep 1, 2029.

January 2010 Documentary Credit World 45

Cover

LC TRADE NEWS

Federal Home Loan Bank of San Francisco issued LC backing US$11,130,000 South Shore Apartments project, Weekly Variable Rate Demand Mulitifamily Housing Revenue Bonds, 2009 Series M, dated Sep 30, 2009, due Sep 1, 2049. JPMorgan Chase Bank, N.A. issued LC backing US$106,100,000 Weekly Variable Rate Measure A Sales Tax Revenue Bonds (Limited Tax Bonds), dated Sep 30, 2009, due Oct 1, 2028 to 2038. JPMorgan Chase Bank, N.A. issued LC backing US$26,710,000 Arizona Public Service Company Navajo Project, Daily Variable Rate Pollution Control Revenue Refunding Bonds, 2009 Series B, dated Sep 22, 2009, due Apr 1, 2038. JPMorgan Chase Bank, N.A. issued LC backing US$5,445,000 A Brookwood Terrace Family Apartments Project, Weekly Variable Rate Demand Multifamily Housing Subordinate Revenue Bonds, Series 2009B-2, dated Dec 23, 2009, due Jan 1, 2014. PNC Bank, N.A. issued LCs backing US$59,005,000 Euclid Avenue Hsg Corp project, Variable Rate Housing Revenue Bonds, Series 2009A-B, dated Dec 17, 2009, due Aug 1, 2039 to Aug 1, 2042. PNC Bank, N.A. issued LC backing US$37,865,000 Bayhealth Medical Center project, Weekly Variable Rate Refunding Revenue Bonds, Series 2009B, dated Oct 27, 2009, due Jul 1, 2010 to 2039. Scotia Capital issued LC backing US$66,455,000 Weekly Variable Rate Demand Utilities System Revenue Bonds, Series 2009C, dated Oct 1, 2009, due Nov 1, 2010 to 2028. Sun Trust Bank issued LC backing US$65,000,000 Robert W. Woodruff Arts Center, Inc. project, Weekly Variable Rate Refunding Revenue Bonds, Series 2009A, dated Sep 24, 2009, due Mar 15, 2039. Sun Trust Bank issued LCs backing US$304,230,000 Adventist Health System/Sunbelt,INC. Accounts Receivable Program, Weekly Variable Rate Demand Revenue Bonds, Series 2009A-F, dated Oct 7, 2009, due Nov 15, 2024 to Nov 15, 2034. U.S. Bank, N.A. issued LC backing US$14,595,000 Pearl Family Housing project, Weekly Variable Rate Housing Development Revenue Bonds, 2009 Series B-1, dated Sep 24, 2009, due Feb 1, 2042. Wachovia Bank, N.A. issued LC backing US$37,865,000 Bayhealth Medical Center project, Weekly Variable Rate Refunding Revenue Bonds, Series 2009C, dated Oct 27, 2009, due Jul 1, 2010 to 2039. Wells Fargo Bank, N.A. issued LCs backing US$30,345,000 Weekly Variable Rate Revenue Refunding Bonds, Series 2009A-B2, dated Sep 29, 2009, due Jun 1, 2031 to Dec 1, 2027. Wells Fargo Bank, N.A. issued LC backing US$10,500,000 University Gateway project, Variable Rate Demand Revenue Bonds, Series 2009, dated Oct 22, 2009, due Dec 1, 2040. Wells Fargo Bank, N.A. issued LC backing US$18,880,000 Florentine Villas Apartments project, Weekly Variable Rate Demand Multifamily Housing Revenue Bonds, Series 2009A, dated Sep 22, 2009, due Sep 1, 2049. Westpac Banking Corp. issued LC backing US$60,000,000 Austal USA, LLC project, Weekly Variable Rate Revenue Bonds, Series 2009, dated Oct 8, 2009, due Sep 1, 2039.

46 Documentary Credit World January 2010

Americas Europe Middle East Hong Kong SE Asia

2010 ANNUAL SURVEY OF LETTER OF CREDIT Where the LC World Comes Together ... LAW & PRACTICE CONFERENCEat 5 Locations ...
Around the Globe!

Tampa
Annual Survey of LC Law & Practice
sponsored by Institute of International Banking Law & Practice
www.iiblp.org info@iiblp.org

Vilnius

Dubai
24-25 May

Hong Kong Singapore


12 July 15-16 July

11-12 March 20-21 May

Day 1 Programme
8:30-9:00 9:00-9:15 9:15-11:00 Check-in and Registration Opening Address & Welcoming Remarks Hot Topics
Presentation: Sent to Wrong Address Is Refusal Required? Limitations Periods & LCs: Do They Mesh with Auto Extension Clauses? Creeping Exceptions to Independence Impact of Arbitration in the Underlying Contract Sending a Notice of Non-Extension Two-Party LCs Attention C DCS Specia lists Ear n Break

Americas Annual Survey co-sponsored and hosted by

11:00-11:30 11:30-1:00 1:00-2:00 2:00-3:00 3:00-3:30 3:30-5:30

Recent ICC Opinions Lunch Standby & Guarantee Issues

13 PDUs

More Significant Than Ever? Fall 2009 Opinions Critiqued

Europe Annual Survey co-sponsored and hosted by

The Most Important Matters Impacting Standby Practice

Break UCP600
UCP600 in the Courts: How is It Faring? Negotiation of Cured Documents

5:30-6:00
Annual Survey co sponsors

Open Forum Reception

6:00 8:30-10:00

Day 2 Programme

13 CLE wyers: Credits Will Be Awarde d

Attention La

Troublesome LC Practice Trends


Current & Future Issues That Challenge LC Practice Complications as to when the notice of refusal must be given.

10:00-10:30 10:30-11:30

Break The LC Year in Review


Brief Summaries of Critical Aspects of LC Practice: SWIFT Issues Certification Basel II DC-PRO Local Issues

11:30-12:30
Annual Survey in association with

LC Compliance UPDATED
What You Need to Know for Your Practice

George Mason University School of Law


Americas Annual Survey co-sponsored by

12:30-1:30 1:30-3:30

Lunch Major Commercial LC Cases


Cases of Importance to Your Region are Critiqued & Discussed, Including Legal & Operational Impact

3:30-4:30

Break & Open Forum


Delegates can Comment or Ask Questions of the Entire Panel

For Further Details & Hotel Information, Contact Us At: +1-301-869-9840 info@iiblp.org www.iiblp.org

Guarantee & Standby Forum Also EUROPE: London (18 May) 0: in 201Additional 2010 Guarantee & Standby Forum Venues:
MIDDLE EAST: Dubai, UAE (23 May) HONG KONG: Hong Kong (13 July)
January 2010 Documentary Credit World 47

SE ASIA: Singapore (19 July) AMERICAS: New York (28 October)

THE INSTITUTE OF INTERNATIONAL BANKING LAW & PRACTICE


20405 Ryecroft Court Montgomery Village, MD 20886 USA Phone: +1-301-869-9840 Telefax: +1-301-926-1265 www.iiblp.org

REFERENCE MATERIALS
The Institute offers the most comprehensive collection of reference materials in the industry. It also regularly conducts seminars on topical issues, general educational forums, and custom training for bankers, lawyers and corporate financiers. All of these products are designed to assist the letter of credit professional, with the practical issues you face on a daily basis. Its most popular reference materials include: UCP600: An Analytical Commentary The Comparison of UCP600 & UCP500 Two New A summary comparison of the changes and Over 1400 pages, a comprehensive interpretation UCP600 of each article of UCP600 in light of LC practice ns! differences between the two versions. and case law with valuable appendices and indices. Publicatio
Annual Review of International Banking Law & Practice Expanded in 2009, the industrys definitive yearly record of international banking activity since 1991. ISP98 & UCP500 Compared See the differences quickly and easily. LC Rules & Laws: Critical Texts (4th Edition) Now with UCP600 and updated ISBP, your all-in-one reference guide for LCs. An Introduction to ISP98 (DVD) Understanding ISP98 (DVD) The best way to learn about the standby rules. Annual Survey of AMERICAS: EUROPE: MIDDLE EAST: HONG KONG: SE ASIA: Letter of Credit Law & Practice Tampa, FL 11-12 March 2010 Vilnius, Lithuania 20-21 May 2010 Dubai 24-25 May 2010 Hong Kong 12 July 2010 Singapore 15-16 July 2010

2010 EDUCATIONAL CALENDAR


The Worlds Premiere LC Event of the Year!

World's Only Event for Interactive Discussion of Guarantee & Standby Topics

Guarantee & Standby Forum EUROPE: London 18 May 2010 MIDDLE EAST: Dubai 23 May 2010 HONG KONG: Hong Kong 13 July 2010 SE ASIA: Singapore 19 July 2010 AMERICAS: New York 28 October 2010 URDG / ISP Seminars EUROPE: London 17 May 2010

A Seminar Series Like No Other The New URDG 758 & ISP98 Compared

for additional venues and dates, contact us


Letter of Credit Law Summit AMERICAS: New York 29 October 2010 SE ASIA: Singapore 17 July 2010

Full day focus on LC practice, forms, and litigation issues.

Scheduled event dates and locations are tentative and subject to change. For the most current information, visit: www.iiblp.org The Institute also develops specialized programs for banks and corporations. For a complete list of resources available, please contact the Institute.
20203 Goshen Road, No. 343; Gaithersburg, MD 20879 USA fax +1-301-926-1265 phone +1-301-330-1970 www.doccreditworld.com info@doccreditworld.com

48 Documentary Credit World January 2010