The transferable letter of credit

Abstract

In the light of the review, currently underway, of the ICC Uniform Customs and Practice for Documentary Credits (UCP500), this thesis seeks to critically examine the subject matter of one of the more problematic Articles of this important body of rules, the transferable Credit, thus identifying any drafting anomalies and risks involved in its operation. In order to achieve a sufficiently comprehensive study of the transferable Credit, it is necessary to understand the rationale for the development of this important type of Commercial Letter of Credit, its transfer mechanism and the benefits to be had from its utilisation. Accordingly, chapter one briefly outlines the special market conditions which led to the transferable Credit's popularity as means of financing international transactions and its salient features. In view of the apparent inadequacy of the definition enunciated by Article 48 of a transferable Credit, chapter two seeks to identify the criteria for rendering a Commercial Letter of Credit transferable. From this analysis it results that transferability is an option which the beneficiary may or may not opt to employ. Therefore, the third chapter examines the nature of the beneficiary's request to have transfer effected, the question of which bank he is entitled to address his request to and whether the bank may withhold its consent to such transfer. The bank is in all cases under no obligation to accept the request except where it agrees or has previously agreed on the 'extent' and 'manner' of the transfer. Therefore, the fourth chapter seeks to clarify what is meant by the 'extent' and 'manner' of the transfer. Chapter five sets out the actual stages involved in transferring a Credit and analyses the first beneficiary's right to substitution of invoices. In view of the Uniform Customs and Practice's failure to define the legal effects of such a transfer, chapter six visits the various attempts at characterising the transfer of a Credit to the more traditional modes of transmitting the benefit of a contract and demonstrates a new approach that might bring the debate on the legal nature of the transferable Credit to a close.