PREFACE

International commercial transactions require efficient risk management. Where transport of

goods reaches over frontiers and delivery and payment are separated in time and space both
seller and buyer have to face certain risks. The seller faces the risk of change in the buyer’s
financial status after shipment of goods has taken place, which may lead to delay in receiving
the purchase price or to non-payment. On the other hand, effecting payment to the seller upon
shipment without being able to find out whether the goods are as per contract carries
significant risk for the buyer.
Letters of credit play a significant role in financing international trade, and have gained great
importance. They have been described as “the life blood of international commerce”1 and
have been referred to as “quintessential international instruments”2 . The law of letters of
credit has emerged mainly from the customs of bankers dealing with importers, exporters,
freight forwarders, shipping and insurance companies. Today, these customs are embodied in
a Code drafted by the International Chamber of Commerce titled “Uniform Customs and
Practice for Documentary Credits” (UCP). The provisions of the UCP are incorporated
globally into standard letters of credit agreements in an attempt to provide a measure of
uniformity in cross-border transactions. The latest revision of UCP, referred to as UCP 500,
entered into effect more than a decade ago, on the 1st of January, 1994. Since then,
international business transactions have gone through rapid changes, especially in the field of
maritime transport, insurance, trade law, and other sophisticated technologies, to which letter
of credit law has had to adapt

II. THE SOURCES OF LETTER OF CREDIT LAW

The law of documentary credits has developed mainly through customs. As Kozolchyk
explains: “Many of its operative rules, regardless of geography or legal system, have emerged
from the customs of the bankers dealing with importers and exporters, and with shipping and
insurance companies”17.
Today, these customs are embodied in a Code drafted by the International Chamber of
Commerce under the title “Uniform Customs and Practice for Documentary Credits” (UCP).
Since banks worldwide in most cases subject their letter of credit to the UCP, this forms the
primary, but not the sole, source of letter of credit law. The development of the letter of credit
law has also been highly influenced by other regulations created by the ICC, the United
Nations Commission on International Trade Law (UNCITRAL), and by national legislation
and case law.
This chapter focuses on the most important sources of letter of credit law. It summarizes the
international regulations drafted by the International Chamber of Commerce, including the
UCP, eUCP, ISBP, URR 525 and the ISP98. It introduces the UNCITRAL convention which
attempted to harmonise the rules in the field of guarantees and standby letters of credit. It also
reviews the UCC as “the most comprehensive and detailed statutory coverage”18 of letters of
credit worldwide. Court decisions that undoubtedly play a significant role in the development
of letter of credit law are dealt with in later chapters, wherever relevant.

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