International shipping and commodity law firm Helmsman has held a webinar discussing issues relating to letter of credit (L/C) payments related to sale and purchase (S&P) of commodities, S&P of ships from financially troubled companies facing fraud allegations, and trafficking in spent bills of lading.

Singapore based Helmsman director Maureen Poh presented a scenario of a buyer purchasing an oil cargo from a company affected by fraud allegations with payment of the cargo on L/C terms.

Pausing L/C payments

The immediate concern for the buyer was to try to stop payment under the L/C but Poh said this was not straightforward because the S&P chain and documentary chain, though related, are actually separate chains of contracts.

"You might have [an] action against your counterparty in the S&P chain but that doesn't mean you can stop payment under [the] documentary chain," Poh told webinar participants.

Describing the L/C payment system as "the lifeblood of commerce", she said that allowing other chains to affect the documentary credit payment would spell "the death knell of commerce."

Alternative jurisdictions

The Helmsman director said some European countries might adopt a more flexible legal position, and in some jurisdictions there is a general duty of good faith where the court might be more sympathetic to the victim of an alleged wrongdoing.

"In one case, the client managed to get a temporary injunction to stop the issuing bank from proceeding with payment to the negotiating bank so they could gather more evidence of the alleged fraud," she said, adding that it might be worth those stuck in an L/C chain exploring different jurisdictions.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.