Comparative Study of Issuing Bank ’ s Obligations towards Beneficiary of the Letter of Credit under UCP and English Law

Process of international trade is complicated and risky. Risks will be more considerable when times come to deal with receiving/sending payments from/to unknown business partners in remote geographic areas. Employing documentary letters of credit (LC) is one of the ways to reduce payment risk in international business especially when partner’s financial standing is unknown to each other. By using the LC as method of payment, parties will shift payment obligation from buyer as a natural person to the guarantee of bank as a legal person. The process of using LC is complicated and involves different players and relations between them. Amongst all relations in process of LC transaction, relation between issuing bank and beneficiary is the most complicated and least clear from legal stand point. This article tries to shed light on vague aspects of relations between issuing bank and beneficiary by studying obligations of the issuing bank towards beneficiary under the law of documentary letters of credit while comparing provisions of UCP with English Common Law on subject matter. Main objective of paper is providing answer to the question of what is the role of issuing bank in the process of LC transaction and which liabilities does it have towards beneficiary? Article consists of five main parts. Part one will provide an introduction to function and relation among different parties in process of an international LC transaction. Further, it endeavours to tap on principle of autonomy and strict compliance as governing principles of documentary letters of credit. Part two and three will take a comprehensive look at legal basis of relations between issuing bank and beneficiary, as well as bank’s obligations under documentary credit law. Part four will discuss liabilities of issuing banks towards beneficiary and finally part five will touch upon situation in which bank will right to recourse against beneficiary.


INTRODUCTION
While being engaged in international business, seller looks for minimizing the payment risk subsequent to delivery of goods by receiving either cash in advance or payment on delivery or where the buyer's interest is to pay only after being certain about receiving goods in accordance with contract of sales. 1Additionally, reasons including: lack of familiarity with other 1 Carr, I., & Stone, P. (2014).International Trade Law, 5th Edition.New York: Routledge, p. 65.
Submitted: Jul 11, 2016; Reviewed: Sep 25, 2016; Accepted: Oct 6, 2016   HALREV Hasanuddin Law Review is licensed under a Creative Commons Attribution 4.0 International License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.Volume 2 Issue 3, December 2016: pp.289-311.Copyright © 2015-2016 HALREV.Faculty of Law, Hasanuddin University, Makassar, South Sulawesi, Indonesia.ISSN: 2442-9880 | e-ISSN: 2442-9899.Open Access at: http://pasca.unhas.ac.id/ojs/index.php/halrevparty's financial standing 2 possibility for either party to default in the course of business transaction, geographical distance of parties 3 , difference in national currencies, need for intermediaries 4 , multi-jurisdictional nature of the transaction 5 are behind decision of parties to use documentary letters of credit as a method of payment in their international transaction.LC is a written undertaking by a bank which assumes primary and absolute liabilities of buyer (applicant) and promises to pay the beneficiary (seller) to pay in accordance with terms of underlying contract of sales previously negotiated between him and the applicant. 678nce the buyer and seller in an international contract are generally in different countries, in the process of LC transaction, it is popular to include a fourth party from the country of beneficiary, namely a bank known as corresponding bank. 9According to Uniform Customs and Practices for Documentary Credits (currently UCP 600), different functions for corresponding bank 10 are: acting as advising bank, nominated bank, negotiating bank and confirming bank.By confirming the credit, confirming bank assumes same liabilities as issuing bank towards beneficiary and relieves him from certain degree of risk which may result in not effectuating payment by issuing bank in accordance with terms and conditions of the credit. 11Autonomy principle and strict compliance as two main governing principles of LC provide that in effectuating the payment, issuing bank does not look into the performance of beneficiary in the framework of underlying contract 12 and beneficiary is only supposed to produce complying presentation of documents stipulated in the LC to receive payment from either of issuing or confirming bank. 13Any claim regarding performance of beneficiary under the contract of sales should be followed separately as banks deal only with documents and not goods. 14cording to Kudrianchov, 15 the LC is a "complex of contractual obligations".Lord Diplock in United City Merchants (Investments) Ltd. v. Royal Bank of Canada 16 defines the relations under the letter of credit as four autonomous but interrelated contracts: 11 Zhou.L. (2002)."Legal Position between Advising Bank and Confirming Bank: Contrast and Comparison", Journal of International Banking Law, 17(7): 226; Mc-Cormack G et al., (2000) Subrogation and Bankers' Autonomous Undertakings, 116 Law Quarterly Review 141.
"…it is trite law that there are four autonomous though interrelated contractual relations involve: (1) Underlying contract for the sale of goods, to which the only parties are the buyer and the seller; (2) The contract between buyer and the issuing bank under which the latter agrees to issue the credit and either itself or through a confining bank to notify the seller and to make payments to or to the order of the seller (or to pay, accept or negotiate bills of exchange drawn by the seller) against presentation of stipulated documents; and the buyer agrees to reimburse the issuing bank for payment made under the credit.For such reimbursement, stipulated documents, if they include a document of title such as bill of lading, constitute a security available to the issuing bank; (3) If payment is to be made through a confirming bank, bank authorizing and requiring the later to make such payments and to remit the stipulated documents to the issuing bank when they are received, the issuing bank in turn agrees to reimburse the confirming bank for payments made under the credit; (4) The contract between the confirming bank and the seller under which the confirming bank undertakes to pay the seller (or to accept or negotiate without recourse to drawer of bills of exchange drawn to him) up to the amount of the credit against presentation of the stipulated documents". 17 Interestingly, Lord Diplock does not give any reference to the contract between issuing bank and seller.This issue has been noticed by Raymond Jack. 18   Hugo, C. (2000)."Documentary Credits: The Basis of the Bank's Obligation".S. African LJ, 117, 224.20   Ibid, p. 231.

Letter of Credit
As it has been mentioned before, function of the documentary letters of credit involves four independent but interrelated contracts.
Parties to contracts are buyer (applicant), seller (beneficiary), issuing/confirming bank, negotiating and/or nominated bank which makes the payment.In fact, process of international LC transaction starts by agreement of buyer and seller in their underlying contract of sales to include a clause which defines documentary letter of credit as method of payment in their trade.
Then the buyer approaches issuing bank in order to open LC in favour of beneficiary.
In case of issuing bank's agreement, LC will be issued and advised to the beneficiary either by issuing bank or her correspondent in beneficiary's country named as "advising bank". 22 case beneficiary seeks for further reduction of risk, he might require the guarantee of second bank on the credit which will involve "confirming bank" in the LC transaction. 23In order to receive payment, beneficiary should present complying documents stipulated in the credit either to issuing bank or her correspondent (nominated, advising bank) or to confirming bank.Receiv-
ing bank will check documents and in case of their conformity with term of the credit, documents will be forwarded to the issuing bank for another round of checking.In case issuing bank finds presentation complying, beneficiary will be paid and applicant will be informed to take documents.where contract of sales had no reference to date of opening of the credit, the Court of Appeal held that buyer should provide the seller with credit before the starting of shipment period.Therefore, he will be sure that payment is secured and there will be not further financial risks involved in that particular transaction. 27

Autonomy Principle
First fundamental principle in operation of letters of credit is Principle of Autonomy.
This principle has been appreciated in national and international legal frameworks. 28 The principle of autonomy of letters of The autonomy principle also has been considered as the foundation for smooth operation of letter of credits by scholars: "We should also remember that in many international trade transactions, there are parties involved than just the buyer or seller.The seller usually had to obtain goods or raw materials from a supplier before he is able to meet the contract made with the buyer.The seller will need to be financed in making payment to their suppliers.That financing comes from the negotiation or discounting of drafts drawn under the documentary credit system.That system of financing would break down completely if a dispute between the seller and buyer was to have the effect of "freezing" the sum in respect of which the letter of credit was opened". 32 order to completely address the es-

Ibid
When the bank is required the issue a pre-advice, Article 11 (b) of the UCP 600 provides that: A preliminary advice of the issuance of a credit or amendment ("pre-advice") shall only be sent if the issuing bank is prepared to issue the operative credit or amendment.An issuing bank that sends a pre-advice is irrevocably committed to issue the operative credit or amendment, without delay, in terms not inconsistent with the pre-advice.
Article 10 of the UCP 600 comments on binding nature of amendments on issuing bank and confirming bank from the moment of issuing the amendment for issuing bank and extending the confirmation to it by confirming bank.
Since UCP does not provide a precise explanation on legal basis of issuing bank's obligation to beneficiary, the matter is left to national laws.In English law, there is ambiguity in justification of contractual relations between beneficiary and issuing bank as unlike general principles of English contract law, in LC transaction, no consideration moves from the beneficiary to bank. 47 However, many scholars attempted to find consideration to support the bank's obligation and introduced different theories in this regard.Three of such theories are going to be discussed here: First is theory of offer and acceptance: This is the dominant theory in English contractual law.Accordingly, issuance of the credit by bank is the offer which might be accepted by beneficiary.Hugo, C. (2000)."Documentary Credits: The Basis of the Bank's Obligation".S. African LJ, 117, 230   is known under English law as 'unilateral contract'. 49"A unilateral contract may arise when one party promises to pay the other a sum of money if the other will do ... something without making any promise to that effect: for example, when one person promises to pay another C100 if he will walk from London to York…". 50Therefore, it is clear that in absence of beneficiary's promise, if there is a contract, it should be unilateral.
Hugo explains two problems for offer and acceptance theory: "(i) the manner and time of acceptance; and (ii) whether the requirement of valuable consideration is satisfied". 51rst problem rises in response to the question of time "at which the offer is "accepted" so as to deprive the offeror of the power of withdrawal".Alternatively, the question would be at what stage the unilateral promise of bank will become irrevocable? 52Some scholars reply that acceptance takes place by beneficiary while presenting stipulated documents to the issuing bank.This means acceptance will be sometimes after manufacturing or shipment of the goods. 53 contrary, other scholars argue that beneficiary accepts the offer "sometime anterior to the tender of documents". 54This view is based on decision of court in old case of

Urquhart Lindsay & Co Ltd v Eastern Bank
Ltd., 55 where Rowlatt J held that acceptance is "acting upon the undertaking". 56Since Rowlatt J never defined the term "acting upon undertaking", different meanings have been suggested including: "purchasing raw materials for manufacturing" or "accepting delivery of materials necessary for production" or "taking steps to ship the goods". 57 From the practical perspective, the theory does not show any merit as it is very vague about time for commencement of irrevocability and this is inconsistent with reality of LC process. 58e fact in English contract law that says consideration should "move from the promise" will make the second problem even more serious. 59Since bank does not bargain for delivery or manufacturing of goods, therefore, undertaking of the seller is not a valid consideration. 60Even sellers' obligation under the sales contract is cannot be considered as a valid consideration for bank's offer as it is known as past consideration. 61Also, "the treatment of the act of presentation as consideration is inconstant with the fundamental purpose of the credit". 62erefore, there is no scope left for consideration in the process of LC transaction.rejection in order to be safe from possible consequences of preclusion by Article 16 (f). 113Such recommendation will not apply in cases that bank decides to reject presentation due to committing fraud by beneficiary.
Since in case of beneficiary's fraud, there is no discrepancy in documents, bank has no obligation to follow instructions of Article 16. 114 This is argued that in case of nullity, presentation can be considered as discrepant as beneficiary has the implied duty to present genuine document under the credit and bank will be precluded from reimbursement according to Article 16(f) if it does not provide the proper notice of rejection.
According to common law principles, when the preclusion under UCP is no the matter of concern, it might be held that apart from failing to state discrepancies in notice of rejection, bank has waived or estopped from relying on them. 115Also, failure of bank to reject documents within reasonable time can stand for acceptance of presentation. 116

Payment to Incorrect Party
The bank should effectuate payment under the credit to party who is entitled for receiving it. 117In case bank pays to the party who is not entitled for receiving the money, the obligation to pay to the entitled party will remain with bank and it should pay once again. 118e decision of Cleveland Manufacturing 113 Ellinger, E.P., Neo, D.S.S. (2010) Co Ltd v Muslim Commercial Bank 119 is a good example.In the case of Cleveland, plaintiffs instructed shipping agents to prepare and present documents to defendant bank.The bank effectuated payment to shipping agents but they did not pay beneficiary as a result of getting liquidated.Since shipping agents were not agents of beneficiary, plaintiff succeeded in court against the bank.

Late Payment
In English law, when there is a delay in mak- "...the date of the payment has passed and the payment has not been made, the way to read the claim of this sort is that it is the claim for damages for non-payment of money, and in ninetynine out of hundred cases the amount of damages will be the sum which there has been the undertaking to pay." 131 In practice, beneficiary will incur loss equal to the price mentioned in the credit 132 and interest due to delay in payment.This amount will be similar to what can be required under the claim in debt.However, it is submitted that claim in damages might have more effect and result higher awards. 133neral principles of English contract law provides that "injured party will be awarded damages which put him in a position that he would have been in has the contract been performed". 134Where there is claim for consequential losses incurred due to the breach 128 Ellinger, E.P., Neo, D.S.S. (2010)  Mainland Bank Ltd  [1958] 1 QB 542 133 Ellinger, E.P., Neo, D.S.S. (2010).Op.Cit., p.123 134 Ibid of contract, such losses will be recovered if claimant manages to satisfy rules of the remoteness of damage. 135 Prehn v. Royal Bank of Liverpool,136 defendant bank rejected the draft drawn on it despite its acceptance at beginning.The court considered case as breach of contract of honouring drafts which became due and ordered in favour of claimants the amount of draft in addition to cost of purchasing fresh drafts from other bank, cost of cable and expenses in protesting the drafts.In Urquhart Industry and Co. Ltd. v. Eastern Bank Ltd,137 the case was about sale of machinery which was manufactured and shipped by beneficiary seller in different instalments.
Defendant bank opened the credit in favour of beneficiary but, rejected honouring a bill despite being presented together with complying documents.The court held that due to bank's refusal beneficiary does not need to continue shipment of future instalments.Therefore, beneficiary should consider the contract terminated and sue in accordance with loss in the whole contract. 138om this case, it is possible to comprehend that issuing bank's breach of obligations to pay under the credit would be considered equal to repudiation of applicant under the contract of sales with beneficiary. 139 has been submitted that claim for damages resulting from breach of contract has a disadvantage of existence of expectations from claimant to mitigate his losses. 140This means that beneficiary facing 135 Prehn v. Royal Bank of Liverpool (1870) LR 5 Ex 92. 136Ibid 137 Urquhart Industry and Co. Ltd. v. Eastern Bank Ltd  [1922] 1 KB 318 138 Ibid., p. 324 139 Ellinger, E.P., Neo, D.S.S. (2010). Op.Cit., p. 124 140 Malik. A (2009), Op.Cit., p. 120 with wrongful dishonour of credit by issuing bank will try to sell goods to other buyer and cover his losses partially.However, such argument does not comply with fundamental principles of LC as beneficiary is guaranteed to receive payment from issuing bank after presentation of complying documents with terms of the credit and as a result, mitigation principle has not received any support in court's decisions. 141In Belgian Grain and Produce Ltd v. Cox & CO. (France) Ltd., 142 Banks LJ held that "requirement for mitigation would defeat the object of the letter of credits which is to avoid controversies as to damages.It would also be contradictory to the fundamental understanding between the bank and the beneficiary that the letter is entitled to be paid as long as he makes a confirming presentation under the credit". 143r beneficiary to win the claim against wrongful dishonour of issuing bank it is necessary to prove that presentation was complying with terms of the credit.However, there is always some inherent uncertainty that court to rule in his favour. 144Also in case of dealing with perishable goods or high storage costs, the time lag between dispute and rendering the judgment by court will be against interests of beneficiary.
Therefore, one solution can be selling his goods and then suing the issuing bank for difference between the price of resale and amount of credit. 145 Third solution can be opening a joint account for beneficiary and issuing bank in order to deposit the money from reselling goods if it is easy to sell them. 149However, this will be difficult option when goods are custom made or not ready for market.Finally, if no action is taken, loser will take all the loss and this is really rare for beneficiary to be so sure about his claim not to act upon reselling the products. 150der English law, payment of the credit by acceptance which means conjunction of drafts to the credit will subject it to the rules of the bills of exchange.Section 57 (1) of Chapter 61 of the Bills of Exchange Act 1882 holds that bank which dishonours an already accepted draft is liable for damages that will be calculated based on the amount of the bill, plus interest and cost of protest and noting.Where draft is discounted by beneficiary and accepted by the drawee bank, the holder of draft will be eligible to sue for wrongful dishonour of it by bank. 151

Beneficiary
In certain situations, issuing or confirming bank might seek recovery from beneficiary 146 Ibid 147 British Imex Industires Ltd v Midland Bank Ltd [1958]  1 QB 542 148 Malik.A (2009).Ellinger. P.E (2010).Loc.Cit. 150Ibid 151 Ibid, p. 128 after paying to him.According to Jack,152 most probable of such situations can be: First and foremost possibility is when the bank examines presentation, finds documents compliant to terms of the credit and effectuates the payment to beneficiary.However, it will be found subsequently that documents are discrepant and bank is not entitled for reimbursement; Second is when applicant files for bankruptcy and will not be able to reimburse the issuing bank after honouring the credit; and third situation might be the occasion that bank has negotiated the credit and draft drawn on the applicant and draft will be dishonoured later.
The general view is that bank (issuing/ confirming) will not have any right for receiving reimbursement from beneficiary as it is against the principle of documentary letters of credit to provide a secure means of payment for beneficiary.Therefore, recourse rights against beneficiary may not exist.

Complying Presentation
Where bank has paid beneficiary against complying documents to terms and conditions of the credit, and then applicant refuses to reimburse the bank for any given reason, bank will not have any cause of action against beneficiary under UCP or common law. 153Bank is supposed to check the credit worthiness of applicant before issuing the credit and beneficiary is not by any means concerned regarding applicant's impecuniousness.Issuing bank should take an action against applicant instead of trying to take the money back from beneficiary.However, it is submitted that since bank is gener- Where UCP is not corporated or relevant provisions of it are excluded then situation will be governed by general principles of common law. 158On the basis of contractual obligations, beneficiary will be entitled to payment after presentation of complying documents.Therefore, bank can avoid payment when the presentation is noncomplying.Therefore, if beneficiary is paid under such circumstances, under common law principles, bank is entitled to claim for "restitution of money paid under mistake".

Ibid
for restitution of money paid to beneficiary based on mistake when the beneficiary is paid but was not entitled for payment or because of committing fraud. 160

Bills of Exchange
Where bills of exchange are included in the credit, law of negotiable instruments will be relevant under English law.In such situation, issuing bank is the drawee of the draft and undertakes to honour the credit upon presentation of complying documents by beneficiary.Therefore, issuing bank will not have any right of recourse against beneficiary as drawer of the draft.Alternative possibility is when issuing bank undertakes to negotiate drafts drawn on the applicant by beneficiary after presentation of complying documents despite the fact that drafts are not allowed to be drawn on applicant under UCP. 161In such a situation (which is possible if parties decide to exclude relevant provisions of UCP), Section 43 (2) or 47 (2) of the Bill of Exchange Act (1882) possibly will give the issuing bank (as the holder or endorsee of the draft) right to recourse against beneficiary (drawer) when applicants (drawee) rejects to pay it. 162

Fraud and Misrepresentation
Since UCP takes a silent approach to fraud, fraud and other expectations to principle of independence in documentary letters of credit are governed by national law.ing disputes in the underlying sale contract… in my view developing the law to allow for the negligent misrepresentation exception would be an unjustified erosion of this very promise.Documentary credits must be allowed to be honoured as far as possible, free from interference form the courts.Otherwise trust in international commerce could be irreparably damaged". 168e decision in DBS Bank Ltd v Carrier Singapore proposed that bank or applicant can raise an action against beneficiary for negligent misrepresentation when the issuer of document provides warranty for documents as accurate to either issuing or confirming bank or applicant. 169

Cleveland Manufacturing Co Ltd v Muslim
presentation of documents.Part three will define obligations of the issuing bank and tap on legal basis of issuing banks obligations towards beneficiary.Finally, part four will explain conditions under which issuing bank has the right for recourse against beneficiary.
documents by beneficiary to issuing, confirming or nominated, the bank has duty of examining the presentation based on documents, within specified period time mentioned in UCP. 92Examination takes place to determine whether or not the presentation is complying with terms of the credit. 93Emphasize on necessity for bank to examine presented documents only on the basis of documents on their face has reference to principle of autonomy in order to prevent bank from considering factors like performance of beneficiary under the under-89 Ellinger, E.P., and Neo, D.S.S. (2010).Op.Cit., p. 116 90 Ibid 91 UCP600-Article 8(b) 92 UCP 600-Article 14 (a); UCP 500-Atricle 13 (a) 93 UCP 600-Article 14 (b); UCP 500-Atricle 13 (b) Article 16 (a); UCP 500-Artcile 14 (b) 96 UCP 600-Article 14 (b); UCP 500-Artcile 13(c) 97 UCP 600-Article 16 (c) and (d); UCP 500-Article 13(b), 14(d) (i) and 14 (d)(ii) 98 UCP 600-Article 16 (f); UCP 500-Article 14 (e) 99UCP 600-Article 16 (g); UCP 500-Artcile 14(d)(ii)100  Ellinger, E.P., andNeo, D.S.S. (2010).Op.Cit., p. 119   In UCP 500, Article 13b provides that "The issuing bank, the confirming bank, if any, or a nominated bank acting on their behalf, shall each have a reasonable time, not to exceed seven banking days following the day of receipt of the documents, to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly".At the same time, Article 14 (d)(i) provides that: "If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents.Such notice shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him".Therefore, there was the possibility under UCP 500 for banks which have done the examination of documents in accordance with Article 13(b) to be precluded from claiming reimbursement as a result of failure in providing notice of rejection "without delay".The concept of reasonable time in examination of presentation is a vague notion and it could be flexible depending of different factors like practice in different parts of the world and also number and complexity of documents. 101However, decisions of the Court of Appel in Banker's Trust Co c State Bank of India 102 and the Supreme Court of Singapore in United Bank Ltd v Banque Na-101 Ibid 102 [1991] 1 Lloyd's Rep 587 tionale de Paris 103 in addition to formulation of UCP 500 provides that seven days period for examination of documents by bank was the maximum time limit for the most complicated presentations.However, shorter time could be considered for the simpler ones. 104This seems to be less problematic under UCP 600 as the Article 14 (b) provides: "A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying.This period is not curtailed or otherwise affected by the occurrence on or after the date of presentation of any expiry date or last day for presentation".Article 14(b) clarifies that under UCP 600; bank may perform examination and issue the notice at any time within five banking days and notions of "reasonable time" and "without delay" are no longer relevant. 105Application of the Article 16(f) of the UCP 600 can impose severe consequences on bank examining presented documents by beneficiary as it provides that issuing or confirming bank which fail to comply with due procedure of rejection stipulated in Article 16 will be precluded from claiming non-compliance of presentation with terms of credit.Such situation will result in obligation of bank to accept documents and pay for presentation while it will not be eligible for reimbursement by instructing party. 106UCP 600 confines preclusion to issuing and confirming bank while not mentioning a word 103 [1992] 2 SLR 64 104 Ellinger, P.E.(2010).Loc.Cit.105 Malek.A, Quest.D, (2009).Op.Cit., p. 110.106 Ellinger, E.P., Neo, D.S.S. (2010).Op.Cit., p. 120.about nominated bank in the same situation.Such position is understandable since nominated bank acts as agent of issuing bank and does not have any obligation to beneficiary regarding honour or negotiation of the credit. 107However, according to the agency law, failure of nominated bank in acting upon UCP instructions will affect position of issuing bank to be precluded from reimbursement by applicant. 108In return, issuing bank may raise a claim for losses against nominated bank due to breach of mandate and failure to comply with UCP instructions. 109In regard with extent of the application of Article 16(f), different court decisions confine it clearly to the documentary discrepancy in the framework of Article 16.Therefore, failure of beneficiary to comply with provisions of Article 16 due to reasons including improper time or place of presentation will not preclude bank from claiming reimbursement from instructing party. 110The court of Bayerische Vereins Bank Aktiengesellschaft v. National Bank of Pakistan, 111 held that Article 13 and 14 of UCP (then UCP 500) only refer to discrepancies on the face of documents.Therefore, as time of presentation cannot be considered as discrepancy on the face of documents, Article 13 and 14 do not apply in case of presentation had been made out of time. 112However, issuing or confirming bank which intend to reject the presentation is recommended to mention all discrepancies (documentary and non-documentary) within the notice of ing payment by bank, beneficiary should prove his loss is recoverable under ordinary rules of causation plus remoteness of damages to get favourable ruling from the hearing.120In the case of Ozalid Group (Export) Ltd v AfricanContinental Bank Ltd, 121  bank made the payment of US$ 125,939 to beneficiary English Company) with two months of delay.As during above mentioned period USD depreciated against Pound and due to existing exchange rate controls on that time, company had to convert its dollars to sterling.The court ordered in favour of beneficiary and they recovered sterling value of dollars between the time that they were supposed to be received and time that they actually received, plus interest of total sum during two months of delay and reasonable costs incurred by sellers in attempt to collect payment.In International Minerals and Chemical Corpn v Karl O Helm AG 122 in absence of exchange regulations, plaintiff (an English company) should prove that they have 119 [1981] 2 Lloyd's Rep 646 120 Malek.A, Quest.D, (2009).Op.Cit., p. 128 121 [1979] 2 Lloyd's Rep 239 122 [1986] 1 Lloyd's Rep 81, P105 converted UDSs to Sterling at the same time or after their receipt due to company financial policy in order to justify their loss.Therefore, it was sufficient to satisfy the test of the likelihood (remoteness) of damage which was also recited in the House of Lord decision of Koufus v C Carnikow Ltd 123 .At present time, claims for interest where banks pay with delay (but before beginning of court proceeding) is governed by the decision of the House of Lard in Sempra Metals Ltd v IRS. 124Accordingly, court would have jurisdiction under common law "to award compound and simple interest on claims for breach of a contract to pay a debt" 125 .Recovery of actual interest lossed due to breach of contract by bank will be conditional to beneficiary's capability to provide proof of loss, satisfy tests of the remoteness of damages, oblations for mitigating damages and other relevant rules. 126Non-Payment Bank has the obligation to honour the conforming presentation.In case of dishonouring the conforming presentation and rejection of bank to pay against complying documents, beneficiary has the right to sue it provided that seller beneficiary remains capable of tendering documents to bank against payment. 127Even in case of non-compliance of documents if issuing or confirming bank does not follow the guidelines for examination and rejection of documents provided in Articles 7 and 8 of UCP 600 will be pre-123 [1969] 1 AC 350 124 [2007] 3 WLR 754.125 Malek.A, Quest.D, (2009).Op.Cit., p. 129 126 Ibid 127 Malek.A, Quest.D, (2009).Op.Cit., p. 125 cluded from rejection of presentation. 128In effect, wrongful dishonour of the presentation by bank means non-payment of amount due on beneficiary under the credit.In such situation, beneficiary has two different bases for his claim against bank: first one is to bring action against bank and aim for damages resulting from breach of bank's obligation.Second, is bringing an action in debt of the sum due under the credit. 129Although, beneficiary might take either of actions, courts seem to treat both actions as the same manner.Greer J in Dexters Ltd v Shenker & Co., 130 mentioned: 152Malek.A. (2009), Op.Cit., p. 129   153Ellinger.P.E.(2010), Op.Cit., p. 133  ally in possession of documents of title under the letter of credit, it can compensate part of loss by reselling goods.154Non-Complying PresentationWhen the UCP applies, the position is that bank does not have any obligation to pay beneficiary against presentation of non-complying documents.The issuing bank which fails to examine and reject non-complying presentation in accordance with procedure explained in Articles 7 and 8 of UCP 600 will be precluded from raising any claim about discrepancy of documents. 155This is clear position of UCP to prevent bank from raising any claim on non-compliance of documents to terms of credit after certain number of days passing from presentation. 156Therefore, issuing bank is bound 157 by provisions of UCP to pay the beneficiary in case of failure to reject presentation due to discrepancy of documents.
However, agreement of beneficiary to terms of LC in normal situation "is an insufficient material from which to imply any such assumption of responsibility". 170CONCLUSION In practice of international trade, documentary letters of credit are in circulation for many centuries.Their existence, popularity and unique model of functioning are proves for their effectiveness in addressing relevant problems to payment risk in international trade finance.Despite numerous efforts of legal experts and academic scholars in defining unclear aspects in complicated process of LC operation, there are yet uncertainties in areas including issuing bank relations with beneficiary.As an interesting and controversial problem, issuing bank's obligations towards beneficiary were scrutinized as the subject matter of current paper.Starting with legal nature of issuing bank's obligation to 168 pay beneficiary, author got to the result that payment obligation of bank to beneficiary is regulated by mercantile usage as UCP does not touch upon the problem and none of contract law theories in common law system are not capable of addressing absence of movement of consideration from beneficiary to issuing bank properly.Further, examination, honour and rejection process of beneficiary's presentation by (issuing/confirming) bank as main obligations towards beneficiary were discussed and relevant case law was considered.In continuation, principle liabilities of issuing bank towards beneficiary were defined under three headings of wrongful dishonour of personation, late payment and payment to wrong party.Last but not the least, discussion of conditions under which bank has right to recourse for restitution of money paid to beneficiary under common law provisions and UCP showed that unlike common law, UCP does not provide issuing bank with right to recourse based on payment under mistake when presentation is complying.Finally, in case of fraud bank has right for recourse against beneficiary under common law provisions where UCP is taking an absolute silent stance.BIBLIOGRAPHY Alavi, H. (2015)."Autonomy Principle and Fraud Exception in Documentary Letters of Credit, a Comparative Study between United States and England".