High Court Ruling On Letters Of Credit

The ICC Uniforms Custom and Practice for Documentary Credits (currently UCP 600) is a set of contractual rules frequently included by express agreement into a documentary credit transaction. One particular point of interest to banks is Article 7 (Issuing Bank Undertaking).

Article 7(c) provides that the issuing bank must reimburse the nominated or confirming bank at maturity when that bank has accepted a draft or incurred a deferred payment obligation whether or not that bank has prepaid or purchased that accepted draft or deferred payment undertaking before maturity.

The construction of this provision and Article 15 was considered in Societe Generale SA v Saad Trading and another [2011] EWHC 2424, with regard to the terms of a letter of credit and a facility agreement between the applicant for the credit and the issuing bank. This case is of interest as it highlights the possible consequences of common banking practices moving away from the strict requirements of