dc.description.abstract |
Of the numerous international transactions entered into by banks, none has attracted the interest of conflicts lawyers like the letter of credit and analogous autonomous payment undertakings. Despite the standardization of the SWIFT formats used to issue letters of credit, banks have been strikingly resistant to the inclusion of choice of law clauses among the other standard form clauses in such instruments. Accordingly, the choice of law rules that apply when the parties have failed to choose a governing law themselves are of particular significance in this context. This remains so despite the ICC’s adoption in 2007 of the UCP 600, which contains a standard set of substantive rules applicable to the vast majority of letters of credit. As the UCP 600 is not comprehensive in its coverage, important questions continue to be governed by the contract’s governing law. These include the existence and scope of the exceptions to the autonomy of the letter of credit, the principles applicable to the assignment of the letter of credit’s proceeds, and the contractual, tortious, and restitutionary remedies that a party to a letter of credit may have. The determination of the law governing such instruments is no easy task, however, as the letter of credit is effectively made up of a matrix of interlocking contracts, each of which could theoretically have its own governing law. The paper focuses on how the English courts in particular (and, to a lesser extent, other jurisdictions) have determined the law governing the various relationships that make up the letter of credit, in particular the relationship between the credit beneficiary and the issuing bank and/or confirming bank. In this regard, the paper examines decisions at common law and under the Rome Convention, and assesses the extent to which the new Rome I Regulation will alter this position. The paper demonstrates that whilst the approach of the English courts might produce a commercially sensible result in the most straightforward types of payment credit, there has been something of a failure to examine the precise nature of the payment obligation involved. Accordingly, there has been little articulation of whether a different approach is appropriate depending upon whether a court is dealing with a payment, acceptance, or negotiation credit. In particular, the paper demonstrates that the English courts have failed to appreciate the difficulty involved in determining the applicable law when the letter of credit is “freely available” or “freely negotiable”. This failure has been particularly evident when the English courts have tried to apply the Rome Convention to such letters of credit, as in Marconi Communications International Ltd v PT Pan Indonesia Bank Ltd TBK (2005), although courts in other jurisdictions have demonstrated a greater awareness of the difficulties involved. The paper concludes that as a matter of principle (and contrary to the current position of the English courts) the law of the issuing bank should govern its relationship with the credit-beneficiary in a freely negotiable/freely available letter of credit, or, where the relationship under consideration is that between the credit-beneficiary and a confirming bank, the law of the confirming bank. The paper argues that this solution is not only commercially sensible, but is also most consistent with the Rome I Regulation, which introduces the important word “manifestly” in Article 4(3). The paper concludes by expressing the hope that this deceptively minor change in the Rome I Regulation will enable the English courts to sidestep the problematic Marconi decision in the future. |
en |