Research On The Bank Examination Of Documents In Letter Of Credit

Letter of credit is an important method of international transaction payment, which should be issued in accordance with the trade contract. Letter of credit plays a vital role in accelerating the development of international trade and flourishing the world economy. In view of special function of L/C, it was even called as "The blood of international commerce" by British Judges.However, in recent years, the usage rate of L/C has declined greatly. According to the survey of British Trade Convenient Organization in 2003, the usage rate of L/C method of payment was only 10% in European Union and North America, while it is just 50% in Asian and Middle East. On the other hand, relevant data reveals that the rate of refusal of L/C reaches nearly 60% in the first delivery of documents. Obviously, L/C is faced by serious crisis. Though the analysis of this phenomenon, the decline of L/C application in the international trade practices can be attributed to the problems existed in the process of examination of documents.As we well know, in the operation of letter of credit, the nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank must determine, on the basis of the documents alone, whether or not the documents appear on their face to constitute a complying presentation. And they must honor or negotiate when the documents presented is complied with the terms of L/C. Therefore, it can be seen that during this procedure, the examination of the documents is very important and perplexing step. Moreover, the key question of the examination of documents is which standards should be used to judge whether the documents presented is consistent with the terms of L/C. In L/C practice, although the principle of strict compliance is one of the basic standards for examination of documents, there is not a uniform and specific standard to judge the documentary compliance by now. However, to our relief, in the definition of Article 2 of UCP600, it stipulates "Complying presentation means a presentation that is in accordance with the terms and conditions of the credit, the applicable provisions of these rules and international standard banking practice", the new article are trying to build up a more reasonable and practical international banking practice standard for the examination of L/C. Undoubtedly, it will cause significant effects on the examination of documents.This thesis is mainly composed by five parts. The theory of standard for examination of document is the core of the thesis. At the same time, it discusses and analyzes the fraud exception which is related with strict compliance,reasonable time and refusal honor or negotiate. The structure of this thesis is as follows: In the first part, it introduces the concept of banking examination of documents and the relevant rules; In the second part, it analyzes the main three historical standards of examination for documents; In the third part, it discourses the core principle of banking examination of documents-principle of strict compliance and discusses the new development of examination of documents; In the fourth section, it focus the fraud exception which is relevant to banking examination of documents. The fraud exception is the negation of the principle of strict compliance; In the last part, according to the new revised UCP600, it introduces the reasonable time of banking examination of documents and refusal honor or negotiate in L/C.