In the last time we (as beneficiary) received many L/Cs from Algeria with following clause under field 47a:
ALL ABOVE MENTIONED OBLIGATIONS ARE ENFORCEABLE/PAYABLE
SOLELY AT AND BY .....(opening bank). ALGERIA SUBJECT TO
ALGERIA LAW AND TO ALL LAWS AND REGULATIONS IN FORCE
IN ALGERIA
All these L/Cs (also from Bangladesh with comparable text) have been opened by the same opening bank.
How should we evaluate our risk under L/Cs with such clause.
Thanks for your statements.
L/C under law of issuing banks country
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HOANGTHIANHTHU_invalid
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L/C under law of issuing banks country
Hi,
I do believe no country laws have a guide on how to check the compliance of the documents required under L/C.
The beneficiary had better reject L/Cs with such a clause as risks can not be predicted.
Regards,
N.H.Duc
I do believe no country laws have a guide on how to check the compliance of the documents required under L/C.
The beneficiary had better reject L/Cs with such a clause as risks can not be predicted.
Regards,
N.H.Duc
L/C under law of issuing banks country
Gerhard,
We've seen that. We asked deletion of the clause and it worked.
Daniel
We've seen that. We asked deletion of the clause and it worked.
Daniel
L/C under law of issuing banks country
This looks like a clause used by a large US bank aimed, I think, at avoiding its offices outside the country concerned being responsible for any default by its issuing office. If the credit is available only with the issuing bank (i.e. there is not any nominated bank), or is confirmed by a non-Algerian bank, I personally would not worry about it as a beneficiary. However, if I were a nominated bank I would not like it one little bit and would only be willing to act as nominated bank, and therefore to confirm (if requested), if it were deleted.
L/C under law of issuing banks country
Courts around the world apply different rules to determine what laws govern, starting with a rule that favors enforcing the law expressly chosen in the undertaking on which suit is brought. If no law is chosen, a court is likely to apply the law of the place where the issuing bank is located. There are other possible conflict of laws rules, including some which would favor the law of the place where the beneficiary or nominated bank is located. But the more a court treats an LC as an independent undertaking and not as a guarantee or promise, the more the court will focus on the place where the undertaking was issued.
US law has a statutory rule (UCC section 5-116) that allows freedom to choose governing law and, absent choice, makes an issuer's obligations subject to the law of the place where it is located. So does the UN Convention on Independent Guarantees and Standby Letters of Credit. The UCC and UN codified conflict of laws rules fully recognize the independent nature of LCs. (Both also make international practice rules enforceable.)
A beneficiary (and nominated bank) should therefore assume that an issuing bank's obligations are likely to be governed by the issuing bank's local law. Maybe this result can be avoided by suing in a forum with different (or, more likely, unclear) conflict of laws rules for LC obligations, but one should not count on it. To avoid issuing bank country risk, it takes more than elimination of an express choice of that country's law.
In this regard, I suspect that the clause under discussion is inspired by the issuing bank's concern about its right to rely on its local sanctions' laws--something which should go without saying. I doubt that this clause is intended, or would be effective, to deter suit against the issuing bank outside its home country.
Regards, Jim
US law has a statutory rule (UCC section 5-116) that allows freedom to choose governing law and, absent choice, makes an issuer's obligations subject to the law of the place where it is located. So does the UN Convention on Independent Guarantees and Standby Letters of Credit. The UCC and UN codified conflict of laws rules fully recognize the independent nature of LCs. (Both also make international practice rules enforceable.)
A beneficiary (and nominated bank) should therefore assume that an issuing bank's obligations are likely to be governed by the issuing bank's local law. Maybe this result can be avoided by suing in a forum with different (or, more likely, unclear) conflict of laws rules for LC obligations, but one should not count on it. To avoid issuing bank country risk, it takes more than elimination of an express choice of that country's law.
In this regard, I suspect that the clause under discussion is inspired by the issuing bank's concern about its right to rely on its local sanctions' laws--something which should go without saying. I doubt that this clause is intended, or would be effective, to deter suit against the issuing bank outside its home country.
Regards, Jim