FEATURE - The Institute of International Banking Law & Practice

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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
FEATURE THE ALL-IN-ONE LC Reference Tool! panelist added that a big advantage to using the UN Convention is that even if you get a beneficiary to agree to US UCC Article 5, in the event of a dispute, UCC Article 5 may not be interpreted in the beneficiary’s country the same way it would be in the US. Panelists mentioned instances where countries use the laws of accessory guarantees which is a serious problem. For example, bankers in Romania might issue a guarantee and not know if it was an accessory guarantee or an independent guarantee unless a dispute emerges and it goes to court. STERN believes that the UN Convention would facilitate all sorts of international transactions; not just the crossborder trade of goods and other panelists added that it would provide greater certainty for such transactions. (Part 2 of the 2008 Americas Annual Survey conference summary will appear in next month’s DCW.) Fully indexed for easy reference to terms from “Advice” to “Wrongful Dishonor” and all items in between! Unable to Attend This Year’s Conference Keep Your Collection Current with This Year’s Book! Regular Price: US$ 129 DCW Readers: US$ 89* Price for Annual Survey Delegates: FREE! (see page 47) Highlights of this year’s volume include: • 12 Articles including Overview LC Law & Practice in 2007 and Contracting Out of US Rev. UCC Art. 5 by Professor James E. BYRNE and global analysis of the UCP600 provisions from experts in Asia, Europe, Middle East, and the US. • 91 Case Summaries from 9 countries and regions around the world including Clough Engineering (Interim Injunction) from Australia, Good Earth (Interpretation) from Hong Kong, and Oliver (Non-Documentary Conditions) from England • 3 Government Actions including Compliance and Regulations Impacting LC Processing • 2 Practice Notices including AFP Trade Finance Survey and SWIFT Update * Shipping Additional To order, contact: Institute of International Banking Law & Practice, Inc. 20405 Ryecroft Court Montgomery Village, MD 20886, USA www.iiblp.org • info@iiblp.org +1-301-869-9840 • +1-301-926-1265 (fax) May 2008 Documentary Credit World 25
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