There is much to report on international arbitration in the field of banking. This is only natural, for international commercial transactions necessarily go hand in hand with questions of financing and guarantees. Such questions involve numerous players, different laws and complex problems, and the schemes thought up in these circumstances may create conditions conducive to differences and disputes.

This complexity is reflected in the diversity of the decisions reproduced on the following pages. The fundamental issue of the performance or non-performance of the underlying contract has immediate repercussions on the payment of a guarantee. Whether done in good or bad faith, the refusal to pay, criticism of documents presented, and objections to the calling of guarantees form the essence of these banking awards.

The various instruments drawn up by ICC-its Uniform Customs and Practice for Documentary Credits (UCP), Uniform Rules for Bank-to-Bank Reimbursement under Documentary Credits (URR), Uniform Rules for Collections (URC) and Uniform Rules for Demand Guarantees (URDG)-offer operational solutions for resolving many conflicts in the field of banking. Failing any express indication by the parties,1 the applicable law will be determined pursuant to the rules of private international law, with the Uniform Rules possibly being applied as usages.2

One of the chief questions in any arbitration is the validity of the constitution of the arbitral tribunal and its jurisdiction. As an arbitral tribunal is entitled to rule on its own jurisdiction, it may also, on the strength of that jurisdiction and through interpretation, extend the scope of the arbitration to related agreements in which there is no express provision for arbitration. For example, an arbitral tribunal ruling under Swiss law considered that a guarantee not containing an arbitration clause was covered by an arbitration clause in the underlying export credit contract, which was considered as a frame contract in relation to which the guarantee was an accessory agreement.3 This analysis is based on the assumption that, in choosing arbitration, the parties wished all aspects of their dispute to be treated together.

Moving on from jurisdiction, one encounters a number of other difficulties which allow a reasoning based on the law of obligations to be applied to the complex techniques of guarantees.

Thus, classic questions relating to the existence and scope of the duty to be vigilant and provide advice are used to back up not altogether felicitous attempts to justify suspending loan repayments and claiming compensation.4[Page52:]

When it comes to assessing the degree of care required, the risk of a devaluation in the currency of a country at war should increase the care exercised by someone who seeks to purchase a large quantity of banknotes on the local market in order to repay a bank loan. That person cannot, a posteriori, make the intermediary who supplied the large quantity of notes bear the entire risk linked to the falsification of notes acquired as part of what was in itself a high-risk operation.5

The key issues in the banking awards often relate to the implementation of documentary credits and guarantees. These issues are of a more complex nature.

One of the first problems is to define the precise nature of the undertaking, which in turn will determine the nature of the relationship between the parties. The arbitrators analyse the scope of the contractual provisions so as to determine the parties' intentions and thus apply the appropriate rules.6

Once this has been done, the arbitrators can then rule on the performance of the contract.7 Most of the disputes turn on the extent of the care required of banks when making payments and providing guarantees.

Although, as a rule, documentary credits require simply a formal, prima facie review of the relevant documents, such review should however be carried out with reasonable care.8 Even if the banks assume no liability with regard to the legal implications of the documents with which they are provided, they should at least check that the documents appear to be compliant.

It is in connection with objections to payment and the freezing of guarantees that the most difficult questions arise. Although non-compliant documents and unsatisfactory performance of the underlying contact often seem to be used to delay honouring commitments,9 it is always difficult to prove the fraud frequently alleged by claimants.10 This, however, is the only means of re-establishing a link (otherwise excluded) between the bank's undertaking and the underlying contract, whenever the purpose of the documentary credit is to ensure that objections based on the underlying contract cannot be used to obstruct payment. It should be mentioned that the fraud to which reference is made here concerns only the documents presented for the purpose of obtaining payment and not the underlying contract.

Lastly, if, at the time of performance, the original contractual provisions are altered by freezing an account rather than providing a guarantee as provided in the contract, this change is regarded as having no effect on the financial institutions without their consent.11

The complexity of banking relations and the imagination of international traders account for a wide variety of disputes. Quite often, it will be possible to find predictable and reliable solutions by reading the banking contracts in conjunction with ICC's Uniform Rules.

1
Case 9561, p. 98 below.

2
According to French case law, UCP have normative status. See Cass. com.,14 October 1981, Dalloz 1982, J. 301 (Annot. M. Vasseur) concerning an attachment; Cass. com., 7 October 1987, J.C.P.G. 1988.II.20928 (Annot. J. Stoufflet) concerning an attachment; Cass. com, 5 November 1991, Dalloz 1992.Somm. comm. 303 (Annot. M. Vasseur) concerning the duties of a bank.

3
Case 9288, p. 92 below.

4
Case 6223, p. 53 below.

5
Case 8994, p. 88 below.

6
Cases 6763, 9561 and 10886, respectively pp. 68, 98 and 112 below.

7
Case 8883, p. 85 below.

8
Case 8818, p. 70 below, citing UCP 400, which has since been superseded by UCP 500, soon to become UCP 600. See also cases 6471 and 9744, respectively pp. 56 and 101 below.

9
Case 10074, p. 107 below.

10
Cases 8883 and 11651, respectively pp. 85 and 115 below.

11
Case 6657, p. 61 below.