FEATURE - The Institute of International Banking Law & Practice

FEATURE
drawings. The tests for
originality used 10 to 15 years
ago no longer work and banks
need new criteria for
determining validity and
acceptance. Banks have to find
a comfort level to accept
documents and this relates to
knowing who their customers
are and use of signed
agreements.
UN LC Convention:
US Adoption
Interest in the United
Nations Convention on
Independent Guarantees and
Standby Letters of Credit (UN
Convention) has been
rekindled due to the
involvement of the Uniform
Law Commissioners (ULC),
the Uniform Law Conference
of Canada, and a delegation
from Mexico.
Completed in 1995, the UN
Convention codifies the
fundamental principle of
independence, defers to LC
practice, and provides a legal
conceptual framework for LC
practice. It is thought to be
particularly valuable to
countries without codified
letter of credit law. Text of the
UN Convention is freely
available on the UNCITRAL
website (www.uncitral.org).
ULC is a US multi-state
body involved in commercial
law and treaties. Sandra
STERN of the ULC explained
that it has formed a committee
to actively study the UN
Convention and make
recommendations.
Harold BURMAN of the US
State Department indicated his
office has had a major interest
in letters of credit and
promoting trade that benefits
the US and others. In past
years, political issues have
stalled progress toward US
adoption. According to
BURMAN, he believes these
issues have “dissipated” and
the UN Convention has
“turned the corner”. The US
State Department hopes to
have a coordinated approach
among the NAFTA states. If
US banks believe having the
US UCC Article 5 extended at
the international level, then
the UN Convention would be
useful.
A member of the law group
exploring Canadian adoption
explained that once Canada
ratifies the UN Convention, it
must be approved by Canada’s
individual provinces. The
member believes the world
would benefit from wider
adoption of the UN
Convention. Among its
advantages, the UN
Convention would offer
greater harmonization within
North America and would
provide general standards for
LCs in concert with the UN
Convention process. The
member supports the “mutual
constructiveness’ underway
between the US and Canada to
adopt the UN Convention.
One panelist explained that
the US UCC Article 5 covers
more than what the UN
Convention does, but the UN
Convention usefully cover
critical elements. It provides
for a fraud exception for
standbys. It has a separate
provision for interim injunctive
relief. It has mandatory
conflict of law rules patterned
after US law. The credit can
specify the law, but where not
specified, then it is the law of
the issuer. This will only affect
outbound cross-border
standbys. The UN Convention
will be an enormous help to
corporates that take
independent guarantees from
abroad, but only if it is
adopted by the US.
What difference would the
UN Convention make for US
banks As a United States
issuer, one may expect that the
credit will be subject to US law
if it is silent as to governing
law. If a dispute is litigated in
the US, then this is true. If a
dispute is litigated elsewhere,
then this may not be true. For
example, BYRNE referenced
the countries of Holland, Saudi
Arabia, Singapore, and
Nigeria. For different reasons
in each, one cannot be
comfortable of the outcome if
the dispute is litigated subject
to those laws. The UN
Convention is a viable
alternative to US law when
one cannot get US law. The
only criterion is that you have
to opt out of it if you don’t
want the UN Convention to
apply to the credit. Another
24 Documentary Credit World May 2008