The three rival tests of compliance in relation to letters of credit : identifying which test provides maximum party autonomy, certainty, flexibility, fairness and good faith

Abstract EN

It is widely recognized that Commercial Law tries to balance considerations of certainty and fairness, from which it follows that the law relating to letters of credit, as part of the general body of Commercial Law, can be expected to involve a similar balance.

The central aim of this paper is to look more carefully at this balance, doing so by employing five basic principles which arguably should govern the law relating to letters of credit.

These five basic principles concern party autonomy, certainty, flexibility, fairness and good faith.

This paper consists of two sections.

Section one deals with the following doctrines, namely, (i) the doctrine of strict compliance (ii) the doctrine of substantial compliance and (iii) the doctrine of qualified strict compliance.

Examination of each of these doctrines will be conducted according to English law, the UCP rules (600) and the revised Article 5 of the UCC (1995).

Section two, deals with the differences between the three rival tests of compliance and the question of which of them provides maximum party autonomy, fairness, certainty, flexibility and good faith.

The paper ends with a conclusion where an attempt is made to formulate a number of proposals (recommendations) which are designed to make the law more sensitive to questions of fairness but without sacrificing the certainty that is essential for commercial dealing.

The improvements concern particularly the compliance standard (in the letter of credit context).