Keywords: documentary letter of credit; Parties; legal nexus
The parties involved in the operation of documentary credit usually include: applicant, issuing bank, advising bank, beneficiary, paying bank, negotiating bank, accepting bank, confirming bank and reimbursing bank; [1] Its basic parties are: applicant, issuing bank, advising bank and beneficiary. When the advising bank decides to notify the documentary credit, it must examine and be convinced of its authenticity, accurately reflect the documentary credit received or its amendment, and the behavior of the advising bank will not have a substantial impact on the legal relationship between the documentary credit and other parties. Therefore, the main parties of documentary credit are: the applicant, the issuing bank and the beneficiary, and they form a legal relationship that is both interrelated and independent. An in-depth analysis of the legal relationship between them is helpful to accurately define the legal nature of documentary credit.
First, analyze the rights and obligations of the insured and the beneficiary.
The relationship between the insured and the beneficiary is actually the contract relationship between the buyer and the seller. The applicant and beneficiary agreed in their contract to settle accounts by documentary credit, which led to the opening of documentary credit. Therefore, the relationship between the applicant and the beneficiary is the basic legal relationship of documentary credit.
(a) the applicant's obligation to open a documentary credit
The applicant must apply for opening a documentary credit on time. When the time for issuing the L/C is clearly stipulated in the contract, the applicant for issuing the L/C shall implement it as agreed in the contract; When the contract does not specify the specific time to open the letter of credit, the applicant should apply for opening the letter of credit within a reasonable time according to the usual practice; The documentary credit opened should be in conformity with the contract, and the terms of the documentary credit should usually be consistent with those stipulated in the sales contract.
(2) Obligation of the beneficiary to submit documents
In international trade, the buyer usually fulfills the obligation of delivery by quasi-delivery, and when documentary credit is adopted, the beneficiary should fulfill the obligation of delivering the documents stipulated in documentary credit according to the contract.
The payment method of documentary credit can effectively guarantee the beneficiary to get the payment, and the beneficiary will usually consciously submit the documents that meet the requirements of documentary credit to the paying bank to get the payment. In the case that the documents are inconsistent and the issuing bank rejects the documents, the beneficiary will generally try to revise the discrepancies as soon as possible to resubmit the documents. If the documents cannot be resubmitted, he will persuade the applicant and the issuing bank to accept the discrepancy, and then negotiate with the applicant to switch to other payment methods if it is unsuccessful.
Rights and obligations of the issuing bank and the applicant.
The contractual relationship between the issuing bank and the applicant is recognized. [2] The rights and obligations between the issuing bank and the applicant shall be subject to the application form signed by the applicant. It is generally believed that the two parties have established a contractual relationship to open a documentary letter of credit and reached an agreement on related matters.
(1) Obligations of the applicant
To sum up, the applicant's main obligations are to pay the issuing bank's funds and fees in full and on time, and provide corresponding guarantees, give clear and specific instructions on opening or amending documentary credits in time, review and honor documents in time, pay payment documents in time, and pay or handle import bills in time when the issuing bank advances money.
(2) Rights and obligations of the issuing bank
1. according to the agreement with the applicant, open and modify the letter of credit in time.
The issuing bank must open and amend the letter of credit in strict accordance with the instructions of the applicant, otherwise the issuing bank shall bear the corresponding legal consequences and may face claims from the applicant. In practice, the replacement fee is paid on a per-time basis, and the issuing bank will generally take the initiative to cooperate with the applicant to increase income.
2. According to the letter of credit application and letter of credit, examine the documents reasonably, cautiously, timely and independently.
The basis of the examination of documents by the issuing bank is the application of the issuing bank. When the examination of documents by the issuing bank is wrong, the applicant has the right to refuse to pay the documents, so it is generally considered that the examination of documents is the obligation of the issuing bank to the applicant. [2]38、[3]
After the issuing bank makes improper payment due to its fault, it is the most common remedy for the applicant to give up the documents and goods. However, does the issuing bank still have the right to be reimbursed by the applicant? Most American courts tend to respect the decision made by the issuing bank in good faith, that is, the documents submitted by the beneficiary are in conformity with the letter of credit. That is to say, if the issuing bank has paid reasonable attention to the payment according to the banking practice or the court's interpretation, the issuing bank will not be responsible for the payment even if it does not meet the requirements. [4]
3. When it is determined that the beneficiary's documents are inconsistent, the issuing bank has the right to reject the documents and pay independently.
Rejecting non-conforming documents is the result of the issuing bank's obligation to review documents, and it is also the legal right of the issuing bank. When the opinions of the issuing bank and the applicant are inconsistent, the issuing bank has no obligation to seek the opinions of the applicant and other parties, and the applicant cannot force the issuing bank to accept the documents with discrepancies. In order to protect its own interests, the issuing bank has the freedom to decide according to objective conditions. [5-6] Therefore, Article 7 of the Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Letter of Credit Disputes stipulates: "The issuing bank has the right and obligation to independently examine the documents, and has the right to make its own decision on whether the documents are consistent with the terms of the letter of credit, whether the documents are consistent with the documents on the surface, and whether the documents are inconsistent with the terms of the letter of credit or not." [7]
In the letter of credit dispute case of China North Industries Xiamen Company v. Fujian Industrial Bank Xiamen Branch, Fujian Higher People's Court (2000) No.058, the issuing bank Xiamen Industrial Bank clearly pointed out the discrepancies of the documents to the paying bank within 7 working days, and kept the documents for processing. When the applicant Xiamen North Company is unable to pay the bill, the issuing bank refuses to pay according to the instructions of the paying bank. The Fujian Higher People's Court held that there was nothing wrong with the issuing bank's decision to refund the ticket in order to avoid risks. [8]
4. After the issuing bank has fulfilled the payment obligation because the beneficiary "meets the documents", if the applicant fails to pay the bill of exchange, the issuing bank has the right to deal with the documents or the goods under the documents, and if the proceeds are insufficient to make up for its losses, the issuing bank has the right to recover from the applicant.
Third, the rights and obligations of the issuing bank and the beneficiary.
The rights and obligations between the issuing bank and the beneficiary are determined in strict accordance with the terms of the documentary credit and the relevant provisions of UCP agreed in the documentary credit.
(1) Rights and obligations of the issuing bank
1. Once the documentary credit is issued, the issuing bank will be bound by it.
Once a documentary letter of credit is opened, the issuing bank irrevocably undertakes the obligation of acceptance when the beneficiary "submits the matching documents", which is the essential feature that distinguishes a documentary letter of credit from a contract.
2. The issuing bank shall timely review the documents in accordance with the principle of independent review and superficial conformity.
According to UCP regulations and practices, once a documentary credit is issued, it is independent of the sales contract and directly binds the issuing bank and the beneficiary. The issuing bank independently examines the documents submitted by the beneficiary according to the requirements of documentary credit, the relevant standards of UCP and the International Standard Practice for Auditing Documents (ISBP), and decides whether they are "conforming documents", ignoring the applicant.
The first criterion for an issuing bank to examine documents is the principle of "apparent conformity". When examining the documents, the issuing bank only decides whether the documents are consistent with the documentary credit on the surface. "Seemingly consistent" means that the issuing bank should check whether the documents are consistent with the documentary credit on the surface, between documents or even within documents.
The principle of "apparent conformity" of documents has formed the convention of "strict conformity" of documents in practice, that is, the documents submitted by beneficiaries must strictly meet the requirements of documentary credits. In the case of 1926, new york Equity Trust Company v. Dawson Partnership Co., Ltd., Judge Summer held that "there is almost the same or similar document space, and commercial transactions cannot be conducted in other ways", which made it impossible for the issuing bank to obtain reimbursement from the applicant. [9] Judge [9] Summer's comments are a high generalization of the principle of strict compliance, which was cited in many subsequent cases.
In the case of Supreme Law (1999) No.432 Chaolian Materials (Hong Kong) Co., Ltd. v. Hunan Branch of Agricultural Bank of China, Article 2 of the disputed letter of credit stipulates: "The goods receipt issued by the applicant must be signed by the applicant according to the signature style held by the issuing bank"; The signature of the sample of the goods receipt retained by the applicant Hualong Company in the issuing bank is: the same sample is stamped with two official seals of Hualong Company, one of which is signed by "Wu Bin" and the other by "Yi Feng". The beneficiary will submit the documents under the letter of credit to the issuing bank for negotiation. After reviewing the documents, the issuing bank found that only the official seals of Hualong Company and Yi Feng were on the goods documents submitted by the beneficiary, so it refused to pay on the grounds that "the signature on the goods receipt was different from that held by the issuing bank". The Supreme Court held that the issuing bank in this case informed the applicant after discovering the discrepancy and refused to accept the payment if the applicant refused to accept the discrepancy. The issuing bank is not at fault and does not assume responsibility. From the judgment of this case, it can be found that the standards for reviewing documents adhered to by the Supreme Court are extremely strict, even stricter than the prevailing standards in the banking industry, and almost to the degree of "mirror image". [ 10]
The strict conformity standard has been widely respected by the banking and judicial circles, but the discrepancy rate of the beneficiary's first submission of documents remains high, so it is necessary to re-examine and further improve the strict conformity standard to meet the actual needs of international trade. As a result, the standards for reviewing documents tend to be relaxed. [1 1] The practice of "strict compliance" has been loosened. If spelling or typing mistakes do not affect the meaning of words or sentences, documents will not be inconsistent. [12] Therefore, paragraph d of article 14 of UCP600 stipulates: "The description of the document contents need not be completely consistent with the letter of credit, the description of the document by the letter of credit and the international standard banking practice, but it shall not conflict with the document contents, other stipulated documents or letters of credit". [ 13]
The issuing bank must complete the examination of documents within a reasonable time. In article 13 (b) of UCP 500[ 14], the time limit for reviewing documents is "no more than seven working days from the day after receiving the documents", but in some cases, the court ruled that the time for quickly reviewing documents was as long as six weeks, which was criticized. [15] The Chinese mainland case did not involve a reasonable time for reviewing documents. The banking industry in China did not set a reasonable time like New York, London or Hongkong, China, and there was no clear case in the Chinese mainland court. [ 16]
For the beneficiary, the obligation of the issuing bank is to examine the documents in accordance with the provisions of the letter of credit and the standards stipulated by UCP and ISBP. Examining documents is the right, not the obligation, of the issuing bank. If the issuing bank gives up the examination of documents or accepts the discrepancies of documents, it means giving up the right to examine documents or reject documents according to UCP600 and ISBP, so it must pay the beneficiary the money under the letter of credit.
3. If there are discrepancies or discrepancies, the issuing bank may contact the applicant to accept the discrepancies, or reject the documents timely and appropriately, and save or handle the documents according to the agreement or practice.
According to the actual operation practice, when the issuing bank examines the documents and finds that the documents are inconsistent or there are discrepancies in the documents, the issuing bank can contact the applicant to accept the discrepancies according to its judgment; It is also possible to notify the beneficiary by telecommunication and other shortcuts within a reasonable time after receiving the documents: refusing to pay or honour, indicating every discrepancy rejected by the issuing bank; And take appropriate measures to deal with documents according to the usual practice. If the issuing bank fails to act in the above manner, it loses the right to claim that the documents or documents submitted are inconsistent. In other words, the issuing bank shall not refuse to honor the documents.
In the case of new york CREACIONES CONIDEA v. MSSHREQ BANK PSC, the notice of dishonor of the issuing bank only indicated "non-conformity" without specifying the discrepancy, and the court's judgment was not sufficient notice of dishonor. [17] In the case of Voest-alpine Trading USA Corp v. Bank of China, the Bank of China only gave a notice of non-compliance, and did not mean to refuse to pay, which was considered unqualified by the court. [ 18]
4. Within the validity period of documentary credit and before the stipulated presentation date, the issuing bank is still obliged to accept the beneficiary's revised documents and review them.
During the validity of the letter of credit and before the delivery date stipulated in the documentary credit, the beneficiary revises the documents and resubmits them, and the issuing bank is obliged to accept the documents. After independent inspection, the issuing bank found discrepancies. The Banking Committee of the International Chamber of Commerce believes that the issuing bank must issue a notice of discrepancy again, otherwise, the issuing bank will be excluded from claiming discrepancies. [ 19]
5. When the beneficiary "submits the matching documents", the issuing bank shall receive the documents and honor them.
Acceptance of documents is the most important obligation of the issuing bank in the legal relationship of documentary credit. When the beneficiary "submits the matching documents", there is no doubt that the issuing bank should honor them according to the stipulations of the documentary credit. The only condition for the issuing bank to decide whether to honor the beneficiary is that the beneficiary constitutes a "conformity presentation"-the documents submitted by the beneficiary, the time and method of submitting the documents conform to the provisions of the documentary credit. The issuing bank gives up the discrepancy, fails to point out the discrepancy and rejects the document within a reasonable time after receiving the document, and points out the discrepancy and rejects the document in a way that is inconsistent with the convention and UCP, and the issuing bank is also obliged to honor it.
6. When the documentary credit is terminated and the documents are still received, the issuing bank has the obligation to properly handle the documents.
If the beneficiary submits documents beyond the time stipulated in the documentary credit, the documentary credit has been terminated and the issuing bank will no longer undertake the obligation of acceptance. However, according to the principle of good faith, the issuing bank should still take appropriate measures to properly handle the documents. In the case of Tangshan Huida Group Import and Export Co., Ltd. v. China Everbright Bank Tianjin Branch, No.51of Tianjin Higher People's Court (2002), Tianjin Higher People's Court held that the issuing bank Tianjin Everbright Bank violated the principle of good faith and the six-month post-contract obligation. [8] 13-23
(2) Rights of beneficiaries
Rights and obligations are corresponding, and the obligations of the issuing bank are also the rights of the beneficiary.
Some scholars believe that once the beneficiary accepts the documentary credit, it is obliged to "present the matching documents" to the issuing bank; In individual judgments in the United States, such as the case of Chaska First National Bank v. Shakopee Gavel Inc, the judge held that the beneficiary was obliged to submit authentic documents to the issuing bank. [20] The beneficiary failed to "submit the matching documents" to the issuing bank. As mentioned above, it violates the obligation to draw up delivery based on basic contracts such as sales contracts between the beneficiary and the applicant, and loses the right to obtain payment through documentary letters of credit. However, after delivery according to the contract, the beneficiary can still demand payment from the applicant. Submitting documents to the issuing bank according to the requirements of documentary credit is only a condition for obtaining payment under documentary credit.
Even if the beneficiary maliciously falsifies documents to defraud the L/C, the issuing bank has no recourse against the beneficiary after paying according to the documentary L/C and UCP, and the applicant still pays the bill under the condition that the issuing bank has no fault in examining the bill. [20]270 Therefore, the beneficiary has no obligation to the issuing bank.
Four, the correlation analysis of the relationship between the main parties of documentary credit
(a) The documentary credit is independent of the basic contract, but it modifies and supplements the basic contract.
Some scholars believe that the irrevocable documentary credit is separated from other contracts, agreements and arrangements based on it or as the basis of the letter of credit. A basic principle of documentary credit is that documentary credit and basic contract are independent of each other. [2 1]
In fact, the principle of independence of documentary credit means that documentary credit is opened on the basis of the sales contract, but once it is opened, it is independent of and not bound by the sales contract; A documentary credit is not affected by the relationship between the issuer and the applicant. This principle comes from article 3 of UCP500. Just saying that documentary credit is independent of sales contracts or other contract transactions does not mean that buyers and sellers are completely free from the constraints and influences of documentary credit. [22]
The independence of documentary credit does not include the independence of the basic contract relative to documentary credit. The basic contract cannot be independent of the documentary credit, but should be bound by the contents of the documentary credit. The inconsistency between the contents of documentary credit and the basic contract constitutes a modification of the basic contract under certain conditions. [23]
Before opening a documentary credit, the applicant and beneficiary agree on the terms of the documentary credit. During the performance of the contract, both parties amended the documentary credit, and the beneficiary also submitted the documents according to the requirements of the amendment notice, or the beneficiary accepted the documentary credit that was not completely in conformity with the contract and submitted the documents. Then, the applicant and the beneficiary reach one or more modification agreements on the terms of the documentary credit, and modify or supplement the basic contract accordingly, which is binding on both parties.
(2) Documentary letter of credit is independent of the application for opening a letter of credit, but the latter is also amended and supplemented.
After the issuing bank opens a documentary credit according to the application, when the issuing bank makes an amendment to the documentary credit other than that stipulated in the application, and the beneficiary expressly or implicitly accepts it, it constitutes an amendment and supplement to the latter. However, according to the view of the Supreme Court in a case, the amendment of documentary credit cannot constitute the amendment or supplement of the letter of credit application under any circumstances.
(three) the relationship between the basic contract, the application for opening a letter of credit and the documentary letter of credit.
The foundation of the basic contract is not only that the latter two are based on the basic contract, but also that the conclusion, especially the performance, of the basic contract is the purpose of both the insured and the beneficiary; Applying for opening a letter of credit is only a means for the applicant to fulfill his obligations under the basic contract; Documentary letter of credit is the result of the issuing bank's fulfillment of the application for opening a letter of credit, and the issuing bank's fulfillment of the obligation of documentary letter of credit-acceptance when the beneficiary "presents that the documents are in conformity" is also the result of the applicant's fulfillment of the basic contractual obligations.
From the relationship among them, the documentary letter of credit is generated by the way of opening an application, and the issuing bank's performance of the documentary letter of credit leads the beneficiary to obtain the price agreed in the basic contract, thus realizing the obligation of the applicant to pay the payment agreed in the basic contract. Therefore, from the beginning-the amount, time and payment terms of the documentary letter of credit are stipulated in the basic contract, to the middle-the applicant and the issuing bank reach an application for opening the letter of credit according to the basic contract. In the end-the issuing bank pays and the beneficiary gets the payment. The center and purpose of the applicant and the issuing bank to fulfill their respective obligations is to pay the payment according to the agreement, and the beneficiary always enjoys the right to get the payment under the basic contract according to the agreement.
Therefore, the relationship between the applicant, the issuing bank and the beneficiary is at the core.