FEATURE - The Institute of International Banking Law & Practice

FEATURE
transaction because of the
requirements.
Prior to completing the LC
cases discussion, panelists
reported that Mexico adopted
legislation on 1 February 2008
regarding letters of credit (see
Apr 2008 DCW 9). Panelists
called upon Americas Annual
Survey delegates from Mexico
for further details. One of the
bankers from Mexico
explained that, previously,
banks were not authorized to
issue standby letters of credit
without the permission of the
central bank. This legislation
now empowers banks to issue
standbys. Panelists believe this
will likely open the door for
Mexico to seek more LCs
(instead of bonds) for
government-related business.
Open Forum
As with each Annual Survey,
the 2008 Americas conference
closed with an opportunity for
delegates to pose questions to
panel members and fellow
delegates. The session began
with one corporate LC user
asking for an interpretation of
what “irrevocable” means and
to whom “irrevocability”
applies. In some instances,
trading partners want
applicant-controlled
documents and some banks
are saying that this affects the
irrevocability. One panelist
stated that banks don’t want
to be put in a position
whereby an applicant might
withhold signing a document.
Referencing ISP98 Rule 4.10,
the panelist explained that a
standby should not allow
applicant-controlled
documents, but if such
document is required by the
credit, the issuer cannot waive
this requirement.
The worry, another panelist
noted, is that this would create
an “unfair” surprise that is
undesirable. The LC
community should want to
protect the reputation of the
LC instrument. Another
participant added that if the
applicant wants a provision in
the LC that allows the issuing
bank to cancel if the applicant
presents something proving it
has completed its part of the
contract, then that would be a
revocable credit.
Regarding communication
between bank and applicant,
one delegate asked if a bank
would be “inviting trouble” if
it would advise an applicant
that the applicant can only stop
the bank from paying by
getting an injunction. Could
the bank be accused of
collusion Some panelists
opined that they would not be
concerned about a collusion
allegation, but they urged
banks not to “advise” the
applicant. Instead, the bank
might reference US Revised
UCC Article 5-109 (which
contains the law that would
govern the situation) and
mention the applicant might
consult a lawyer. Also, banks
should not give a time
deadline for the applicant to
reply. Delegates explained this
scenario is a real concern to
them, but panelists reiterated
their belief that a deadline
should not be given and stated
that a bank should not change
its procedures on document
examination over this matter.
A participant asked about
an applicant certificate for an
automatic decrease especially
where there is a counter
guarantee. One panelist stated
that the standby is in one
direction and commercial is in
the other direction, so this is
determinable from the bank’s
own records when payment is
made and the bank can reduce.
He cautioned, however, that
this must be tightly controlled.
Another participant asked
about a local guarantee which
contained language stating
that it was freely assignable
and transferable without
notice to the issuing bank.
How could one make sure that
the letter of credit is not
transferred or assigned to a
prohibited party One
delegate suggested that within
the language of the draw of
the counter standby, the local
bank must certify who was
drawing under their local
guarantee. Panelists noted that
in some instances, applicants
do not do their homework and
submit formats that local
banks cannot issue. ■
24 Documentary Credit World ■ June 2008