ICC Digital Library Forum

The following phrase appears on a letter of credit issued by a Mexican bank: "..as to matters not governed by UCP 500, shall be governed by and construed in accordance with the laws of the Mexican United States."

Has this wording concerned other banks?
What about legal ramifications if there was a dispute?

Thanks for your input.

The ICC have issued an Official Opinion in relation to such a matter, the following is the Conclusion to the Opinion:

"An issuing bank is perfectly at liberty to issue their letters of credit which are subject to the UCP 500 and to matters not governed therein, to the laws of the country of issuance."

To see the full text of the Opinion, search "laws" in the full site search - selecting only ICC Opinions.
(1st result)

My personal views, without responsibility/liability, are:

If I were a nominated bank located outside Mexico I would be most concerned. This is because the governing law of the credit, in matters not covered by UCP500 at the very least, would be Mexican, of which I would not have any knowledge. In addition, as it would be most unusual to have matters not covered by UCP500 governed by one law, and matters covered by UCP500 covered by another law (e.g. the nominated bank’s jurisdiction’s law), the governing law of the credit must logically be Mexican for all matters. Therefore, if correct, the issuing bank’s obligations to me -as nominated bank- and the tests of facial compliance etc would also be determined in accordance with Mexican law (courts’ interpretations of UCP500 can vary from jurisdiction to jurisdiction). Additionally, although jurisdiction is not mentioned, if the governing law of the credit is Mexican, a court in the nominated bank’s jurisdiction may take the view it does not have jurisdiction to hear any case concerning dispute between the issuing bank & nominated bank or, perhaps less likely, nominated bank & beneficiary. In other words, any disputes might have to be settled in a Mexican court, a foreign jurisdiction to the nominated bank. All in all, I would refuse to act as nominated bank on any credit that was stated –whether wholly or partially- to be subject to a law other than my own.

Finally, for the avoidance of doubt, I would stress that these remarks are not indicative of any disagreement with Leo’s posting above.

[edited 2/6/02 9:41:36 AM]

It is unclear which law applies in the event of litigation. As far as I know there is no legal jurisdiction of "Mexican United States".

Additionally, some US laws claim authority outside of the national territory of the US (e.g. Anti-Trust Laws).

Laurence
p.s. Is the initial posting from someone with a second successful career in the US pop music industry ?

Laurence,

I’ve just rung the Mexican embassy in London and been advised that the official name of the Mexican state is the United States of Mexico. This was as much a surprise to me as I imagine it will be to you.

Jeremy

P.S. For the avoidance of misunderstanding, I would add that I was not suggesting that -by virtue of the governing law being Mexican- the nominated bank could ignore its own country’s mandatory laws and the orders of its own country’s courts.
[edited 2/6/02 10:26:50 AM]

Jeremy,

many thanks for the snippet of information. It did come as a surprise to me, but also I presume to Croners, with which I usually double check such questions.

Therefore my question must be altered to : Is Mexican United States officially acceptable as a jurisdiction in place of United States of Mexico ?

Laurence

Search me, guv.

Suppose a letter of credit shows the following parties: an Issuing Bank in country A, Confirming Bank in country B, Nominated Bank in country C & Beneficiary in country C. The LC is silent in regards to the choice of Law. In case of dispute, which proper law and jurisdiction WOULD LIKELY apply for the relationship between:

a)the Issuing Bank and the Confirming Bank?
b)the Issuing Bank and the Nominated Bank?
c)the Issuing Bank and the Beneficiary?
d)the Confirming Bank and the Nominated Bank?
e)the Confirming Bank and the Beneficiary?
f)the Nominated Bank and the Beneficiary?

My personal views without responsibility liability are:

Firstly governing law and jurisdiction must be separated, as governing law does not automatically determine jurisdiction.

Secondly, as to governing law, I understand that in England this would be determined by the 1980 Rome Convention on the Law Applicable to Contractual Obligations, which was incorporated into English law in 1991. Also, that there has only been one credit case in England with regard to the Convention, Bank of Baroda v Vysya Bank, 1994.

On the basis of: the law where the bank to which documents are to be presented by the beneficiary is situated, is the law of the jurisdiction with which the credit contract is most closely connected, and thus that law should apply to all the inter-bank and bank-with-beneficiary contracts; I would say that the law of the jurisdiction in which the nominated bank is situated should apply to all contracts a – f above, i.e. it should be their governing law.

Thirdly, as to jurisdiction, I understand that in England this would be determined by the 1968 Brussels Convention on Civil Jurisdiction and Judgements in Civil and Commercial Matters, which was incorporated into English law in 1992. On the basis of: the place of performance of the obligation in question determines jurisdiction; the jurisdiction will vary depending on the ‘reimbursement’ terms of the credit (that is not to say this is the sole factor), the obligation in question being payment. Thus I could see that courts in any of the countries of the parties involved could possibly claim jurisdiction, depending on the circumstances, as well as a court in another country, for example if the currency of the credit is not a currency of any of the countries of the parties involved.

A good example of possibly unanticipated jurisdiction is Chailease Finance Corp v Credit Agricole Indosuez (2000) where the English courts held they had jurisdiction over a standby issued by CAI, Switzerland (which was recognised by the English courts to be governed by Swiss law), in USD in favour of a beneficiary in Taiwan, by virtue of a term of the standby. The standby was not advised through a bank in the UK and was only available with CAI, Switzerland.


[edited 2/7/02 4:40:58 PM]

Jeremy,

I understand the applicable law issue is a complex one and is not covered under UCP 500. Just to add to what you have said, I believe what one jurisdiction will select as being the "proper law" may not be the same as another. A different interpretation could arise depending upon the court of which country that would hear the case and depending on the relationship that we are talking about, that is whether the dispute is between:
a) banks involved or
b) beneficiary and the banks

For the sake of discussion, taking the principle that the law where the bank to which documents are to be presented by the beneficiary is situated, is the law of the jurisdiction with which the credit contract is most closely connected, and thus that that law should apply to all the inter-bank and bank-with-beneficiary contracts, appreciate your personal view, without any responsibility on your part, on the proper law that might apply in the following hypothetical example :

Issuing Bank in country A issues a standby letter of credit subject to UCP 500 (just to stay under UCP) in favour of a bank (the bank is the Beneficiary)in country B to provide a branch of the Issuing Bank's customer in country B a credit facility for lets say an overdraft, letters of credit, guarantees, loan etc.

Any claim has to be made to the Issuing Bank by authenticated teletransmission. The standby is silent about the governing law. Let's also say that it is understood that the letters of credit or guarantees that might be issued by the Beneficiary (bank) upon request of Issuing Bank's customer would most probably governed by the laws of country B.

Since in case of claim under the standby letter of credit, the presentation in a form of an authenticated teletransmission is to be made to the Issuing Bank, which country law do you feel is applicable in case of dispute between the Issuing Bank and the Beneficiary (Bank), country A or B.

Would it make it different, if the standby allows, in case of default by the Issuing Bank's customer, the Beneficiary to draw on the Issuing Bank's account in a bank in country B or if the standby is in a currency other than that of the beneficiary's (bank) country currency, allows it to draw on Issuing Bank's account in country C. In this case lets take this two scenario:
a) Beneficiary (bank) made the drawing on the Issuing Bank's account and received payment.
b) Beneficiary made the drawing but the Issuing Bank was able to cancel the reimbursement instruction in time.
In this second example the beneficiary has to still make presentation to the Issuing Bank by authenticated teletransmission i.e. it will advise the Issuing Bank that default has occurred and it has claimed from its account with the reimbursing bank.

Appreciate other participants' views as well.