1The Four Stages in the Electrification of Letters of Credit Professor James E.

Byrne* Introduction In the euphoria of the 1990s accompanying the dot-com revolution it !as thought that electrification could "e accomplished "y legislation directed at removing "enighted o"stacles to the use of electronic communications. In this process !hich often !as "oth statutory and mandatory it came to "e grudgingly conceded that there !ere certain e#ceptions that had to "e recogni$ed the most notorious of !hich !as the o"ligation em"odied in a negotia"le instrument. It !as ho!ever thought "y many that these e#ceptions !ould erode more or less rapidly as the particular area accommodated itself to electrification or !as "ypassed and "ecame an anti%uated relic in the museum of commercial devices. In retrospect it may "e seen that this approach !as far too optimistic and perhaps too simplistic and that the electrification of commerce cannot "e accomplished or even sometimes hastened merely "y legali$ation. &his paper dra!s on the insights and lessons to!ards understanding the process of electrification of commerce from the perspective of an important instrument of commerce and finance the letter of credit.1 In a sense the field of letters of credit is offered as an empirical la"oratory in !hich the ongoing progress of electrification !ill "e considered and o"stacles pro"lems and issues !eighed. &here are considera"le advantages to considering electrification from the point of vie! of letters of credit. 'istorically letters of credit have "een more amena"le to electrification than many other types of commercial underta(ings. )rom the mid-nineteenth century letters of credit !ere issued telegraphically * and methods of authentication !ere %uic(ly devised so that there !ere no o"+ections to the enforcea"ility of a letter of credit so issued "ased Professor Byrne is a mem"er of the faculty of ,eorge -ason .niversity /chool of 0a! and 1irector of the Institute of International Ban(ing 0a! 2 Practice. 'e chaired the ../. 1elegation to the 3or(ing ,roup that drafted the .4 5onvention on /tand"y 0etters of 5redit and Independent ,uarantees !as 6eporter and 5hair of the International /tand"y Practices 7I/P989 1rafting ,roup and !as advisor in the revision of ../. .55 :rticle ; 70etters of 5redit9 and .5P<00. 'e served on the drafting group for the e.5P and I/BP. 'e ac(no!ledges the invalua"le assistance of 5ourtney :. /tevens J.1. and mem"er of the =irginia Bar and Joshua 1. 5ham"erlain J.1. candidate *01* ,eorge -ason .niversity /chool of 0a!. Institute of International Ban(ing 0a! 2 Practice. > *011. :ll rights reserved. )or the purpose of this paper the term ?letter of credit@ and related terms are unless other!ise apparent from the conte#t intended to connote the entire family or genus of letter-ofcredit related underta(ings namely definite promises to pay on the presentation of re%uired documents. &his family includes so-called commercial letters of credit stand"y letters of credit independent guarantees confirmations pre-advices and reim"ursement underta(ings. &his typology of letters of credit is merely descriptive there "eing no fundamental difference at the a"stract level of la! "et!een the various mem"ers of the genus ?letter of credit@. 1
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on either the lac( of a !riting or authentication. In addition the letter of credit underta(ing unli(e that contained in a negotia"le underta(ing is not merged !ith the o"ligation so that there is no reification of the o"ligation in a uni%ue piece of paper. 3hile there are minimal formal re%uirements for an enforcea"le letter of credit A namely a signed !riting they are not loc(ed into a uni%ue ?operative letter of credit instrument@ from the perspective of la! of practice.B /ome types of letters of credit particularly those providing payment for transactions in goods ; re%uire presentation of uni%ue documents such as "ills of lading or !arehouse receipts. &hese documents have elements of negotia"ility in that the underta(ing of the carrier or !arehouseman is to deliver the goods to the person !ho presents it and is entitled to possession under the document. &he paper-intense character of commercial 05s has caused corporate users and "an(s to endeavor to move to!ards paperless underta(ings. &he operations or processes surrounding a letter of credit may "e loosely divided into three See, e.g. 3I0BE6& 3:61 :-E6I5:4 5C--E65I:0 56E1I&/ ;A 7&he 6onald Press 5ompany 19**9 7referring to ca"ling credits "et!een "eneficiaries and "an(s9. /ee also Tourists Telegraphic Code for Use between Brown, Shipley & Co. And Users of their Travelling Credits 7190<9 7providing shorthand codes for "an( customers to use to telegram re%uests for funds and letters of credit to the "an(9 for a typical "oo( provided for travelers !ho commonly resorted to travelerDs letter of credit a precursor to the credit card. 4egotia"le instruments on the other hand are laden !ith numerous restrictions and re%uirements ma(ing them cum"ersome and largely irrelevant for many modern commercial uses and caused them to "e "y-passed in the real !orld in many respects. )or e#ample !hat statutes say a"out negotia"ility has little to do !ith !hat "an(ers focus on namely the ?magic terms@ of order or "earer and not the other elements of ?negotia"ility@. See, e.g. the .nited 4ations 5onvention on Independent ,uarantees and /tand"y 0etters of 5redit 7.4 05 5onvention9 :rticle E* 7Issuance form and irrevoca"ility of underta(ing9 7operative in ?any form !hich preserves a complete record of the te#t of the underta(ing and provides authentication of its source "y generally accepted means or "y a procedure agreed upon "y the guarantorFissuer and the "eneficiary@9G the ../. -odel .niform 5ommercial 5ode :rticle ; 70etters of 5redit9 7../. 6evised .55 :rticle ;9 Hhereinafter .55 :rticle ;I /ection ;-10B 7)ormal 6e%uirements9 7?any form that is a record and is authenticated 7i9 "y a signature or 7ii9 in accordance !ith the agreement of the parties or the standard practice referred to in /ection ;-1087e9@9. &he underta(ing itself can re%uire that the ?original@ letter of credit and any amendments "e presented. In that case the operative instrument is simply another document !hich must "e presented and on !hich the issuerDs promise to pay is conditioned. &hese credits are properly understood as ?commercial@ letters of credit although in some parts of the !orld misnamed ?documentary@ 7"ecause "y their very nature all letters of credit are ?documentary@9 letters of credit. *
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phases !hich !ill "e the "asis for the treatment of the electrification of letters of credit in this paper. &he phases areJ 719 issuance of a letter of creditG 7*9 processing "y the "eneficiary and the 05 "an(sJ presentation and e#aminationG and 7A9 payment.< )or the purposes of this paper issuance involves the process of release of the operative underta(ing and its transmission to the "eneficiary in a manner that ena"les the "eneficiary to comforta"ly act on it. Presentation and e#amination involves the process of the creation of documents on !hich the letter of credit o"ligation is conditioned their su"mission to a "an( named in the credit to receive them the for!arding of these documents to persons !ho have made an underta(ing under the 05 their e#amination any notification of refusal and su"se%uent cures if any. Payment involves the honor of the o"ligation of those persons ma(ing an underta(ing on the letter of credit. Each of these phases involves electrification to some e#tent although the pace and depth varies. :s indicated the issuance of a letter of credit or amendments has "een electrified since the invention of the telegraph. Payments have "een accomplished through electronic means at least since the "eginning of the t!entieth century and although there is little evidence pro"a"ly earlier. &heir effectiveness depends to some e#tent on settlement or the a"ility to settle and may involve comple#ity in an international conte#t "ut at the very least electronic messages authori$ing charges against correspondent accounts or reim"ursement from correspondent accounts are readily electrifia"le and have "een so treated for decades. :s !ill "e descri"ed the principal difficulty in the electrification of letter of credit practice has involved the second phase of the process namely the preparation and presentation of documents.E It is at this stage that many of the insights and lessons that are availa"le from this field can "e o"served and considered. In this conte#t it should "e noted that the "an(s involved in letter of credit transactions have ta(en the lead in facilitating the electrification of letters of credit most recently collectively through the agency of /3I)&.8 :part from and in a certain sense in parallel to the evolution of 3hile it is possi"le to add other dimensions to this such as the transfer of transfera"le letters of credit or amendments and other miscellaneous matters these three general movements descri"e !ith considera"le utility the "asic operational flo! of a letter of credit or letter of credit type instrument. Even at this stage there has "een electrification to a considera"le e#tent. -a+or international "an(s currently scan documents presented and e#amine them at regional processing centers moving them around the glo"e on a *B-hour "asis. &he /ociety for 3orld!ide Inter"an( )inancial &elecommunication 7/3I)&9 is a private international cooperative society of over 9 000 "an(s and is head%uartered in Belgium. It transmits financial messages. See /3I)& !!!.s!ift.com 7last visited )e". 1; *0119. Because of political reasons /3I)& has not emphasi$ed the effect of its formatting on the su"stance of letters of credit deli"erately attempting to cast itself in a secondary role. It is not fully appreciated to !hat e#tent the medium has shaped the message. &his aspect of letter of credit standardi$ation ho!ever is a field ripe for academic study. Cne clear e#ample is the utili$ation of the terminology related to the ?availa"ility@ of a letter of credit. &his terminology !hich A
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letter of credit rules and la! the electronic processing of letter of credit operations has played a critical role. )or purposes of this paper the process of the electrification of letters of credit is divided into four stages.9 &he stages suggested overlap one another to a certain e#tent and evince a certain ar"itrary character regarding their application. &hey also operate at different paces !ith respect to each of the three phases into !hich letter of credit practice has "een divided. 4onetheless it is su"mitted that the stages do offer a useful tool not only for the understanding of electronic commerce in general "ut also for its increased utili$ation in a given field. &he four stages areJ 719 the legali$ation of the utili$ation of electronic commerceG 7*9 the systemi$ation of electronic commerce in that fieldG 7A9 the acceptance of electronic commerce as the norm for transactionsG and 7B9 the transformation or evolution of the product as a result of the utili$ation of electronic commerce. Because of the limitations of any names the stages !ill "e e#plained su"se%uently in connection !ith letters of credit. STAGE 1: Legalization of Electronic LCs &he first stage of electrification involves a process descri"ed here as ?legali$ation@. 3hile this stage affects all three of the phases of letter of credit processing namely issuance performance and payment it affects the process of issuance the most pronouncedly. By legali$ation !hat is meant is an attempt to provide a legal infrastructure !hich is conducive to utili$ation of electronic commerce. &o a certain e#tent that effort !as represented "y many of the statutory or model la! attempts of the 1990s !hich attempted to provide recognition and %uic(ly "ecame em"edded in /3I)& formats has shaped the thin(ing of "an(ers to the e#tent that although incomprehensi"le to most people "an(ers continue to thin( in terms of a credit "eing availa"le "y sight payment negotiation deferred payment underta(ing or acceptance as is reflected in the latest revision of the .niform 5ustoms and Practice for 1ocumentary 5redits I55 Pu"lication 4o. <00 effective 1 July *00E Hhereinafter ?.5P<00@I. See also J:-E/ E. BK64E E& :0. .5P<00J :4 :4:0K&I5:0 5C--E4&:6K *; 7*0109. It is not apparent to the author !hether there has "een any definitive treatment of the process of implementation of electrification a study that !ould re%uire dra!ing upon various disciplines including "usiness sociology la! and electronics. &he categories suggested here derive chiefly from the authorDs e#perience and studies of electronic commerce over the last *; years a time that !itnessed the evolution of the field from ?electronic funds transfer@ 7E)&9 to a !hole ne! !orld of initials and concepts. In spea(ing of ?stages@ it is important to %ualify the term. It is not used to suggest chronological or se%uential steps that must "e completed "efore ?moving on@ to another ?stage@. Perhaps the terms ?field@ or ?area@ "etter capture the notion that there are dimensions of the process of electrification !hich must "e ta(en into account "ut these terms have their o!n limitations as !ell. 5onse%uently the author has settled for the term ?stages.@ B
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acceptance of electronic data as the functional e%uivalent of paper-"ased data.10 In the field of letters of credit to a considera"le e#tent that process involved the legali$ation of issuance or formation formality and payment systems. :s indicated letters of credit have long "een issued via telegraph and as the methodology for telecommunication improved "y ca"le tele# and increasingly "y technologically sophisticated means of electronic data interchange. &he more than 1;0 years of electronic issuance is an era in !hich the defense of failure to meet formal re%uirements !ith respect to the underta(ing "eing in the form of a signed !riting has rarely if ever "een raised and never successfully so. &he legali$ation of the electronic issuance of a letter of credit in positive la! first appeared in the process of the drafting of the first version of the ../. .niform 5ommercial 5ode. It !as present in t!o distinct aspects the general definitions provided in .55 :rticle 1 7,eneral Provisions9 and in the formality provisions of .55 :rticle ; 70etters of 5redit9. Prior .55 /ection 1-*017B<9 defined ?!ritten@ or ?!riting@ as including ?printing type!riting or any other intentional reduction to tangi"le form. /ection 1-*017A99 defined ?signed@ as including ?any sym"ol e#ecuted or adopted "y a party !ith present intention to authenticate a !riting. &he 19;* version of .55 :rticle ; 70etters of 5redit9 represents a more dramatic recognition of electronic commerce. .55 /ection ;-10<7*97a9 719;*9 7Esta"lishment and 5ancellation of a 5redit9 provided ?HaI telegram may "e a sufficient signed !riting if it identifies its sender "y an authori$ed authentication !hich may "e in code.@11 :rgua"ly this provision is one of the first e#press statutory recognitions of electronic !ritings and signatures.1*

In one of its most nota"le achievements .45I&6:0 has ta(en the lead in laying the "asis for the e#tensive legislation that provides that !here a !riting is re%uired that re%uirement is ta(en to have "een met !ith electronic !riting !here certain conditions are fulfilled.
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.55 /ection ;-10<7*9 7Esta"lishment and 5ancellation of a 5redit9 719;*9 providesJ

.nless other!ise agreed a9 : credit is esta"lished !ith relation to all parties !hen the "eneficiary receives the letter of credit itself or authori$ed !ritten advice of it and it is also esta"lished !ith relation to the customer as soon as the letter of credit is delivered to him. : telegram may "e a sufficient signed !riting if it identifies its sender "y an authori$ed authentication !hich may "e in code. &he authori$ed naming of the issuer in an advice of credit is a sufficient signing.

&he 19;* version of the .55 !as only adopted in the ../. state of Pennsylvania. :fter its adoption the 4e! Kor( legislature referred the 19;* -odel .55 to its 0a! 6evision 5ommission !hich undertoo( a massive study of the 5ode !hich resulted in a num"er of proposals some of !hich !ere incorporated in the 19;E amendments to the -odel 5ode. In its 19;E revision .55 /ection ;-10B7*9 719;E9 provided that ?a telegram may "e sufficient signed !riting if it identifies its sender "y an authori$ed authentication.@ ;
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:s a result !hen the dot-com revolution occurred the %uestion of allo!ing for the electronic issuance of a letter of credit !as a non-event. 4ot only !ere the definitions of ?signed@ and ?!riting@ in :rticle 1 of the .55 sufficiently "road to encompass an electronic letter of credit 1A "ut prior .55 /ection ;-10B e#pressly em"raced the notion of electrification "y its reference to a telegraphic message.1B .nder the codification of common la! represented "y the .55 e#trapolation from e#press reference to telegraph to similar electronic methodology !as not an issue and presented no pro"lem. &he formulation of the provisions of the .4 05 5onvention !as li(e!ise une#ceptional in that electronic issuance and amendment !as ta(en for granted. :s a result .4 05 5onvention :rticle E7*9 provides for electronic issuance of letters of credit.1; &he li"erali$ed approach to the legali$ation of the electrification of formation of the o"ligation should "e compared to the more restrained approach ta(en !ith respect to performance. In this there is a lesson !hich perhaps may have implications "eyond the field of letters of credit 3hile issuance and payment posed no challenges and the permissive drafting sanctioned "ut did not mandate electronic issuance there !ere suggestions made that there should "e a "eneficiary right to ma(e electronic presentation. :s !ill "e discussed under the stage of acceptance this approach !as not em"raced and happily a more conservative approach !as adopted. .nder it terminology !as utili$ed !hich !ould support electronic presentations !hen the letter of credit allo!ed or permitted them "ut the determination of !hether or not documents could "e presented electronically !as other!ise left to the evolution of practice and not dictated "y positive la!. &his approach is one of great !isdom "ecause it respects the idiosyncrasies of the field and concerns related to it !hich are discussed su"se%uently. STAGE 2: Systemization of Electronic LCs

.55 1-*01 7,eneral 1efinitions9 defined ?!ritten@ or ?!riting@ as including ?printing type!riting or any other intentional reduction to tangi"le form.@ .55 1-*017B<9. L 1-*017A99 defined ?signed@ as including ?any sym"ol e#ecuted or adopted "y a party !ith present intention to authenticate a !riting.@ .55 1-*01 7*00*9. See also .55 ;-10B Cfficial 5omment 4o. * 7*00*9 7?the definition of ?document@ contemplates and facilitates the gro!ing recognition of electronic and other nonpaper media as ?documents.@9
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.55 :rticle ;-10B /u"section 7*9 7199B9.

?:n underta(ing may "e issued in any form !hich preserves a complete record of the te#t of the underta(ing and provides authentication of its source "y generally accepted means or "y a procedure agreed upon "y the guarantorFissuer and the "eneficiary.@ .4 05 5onvention :rticle E7*9 7*0009. &he .4 05 5onvention may have "een overam"itious in providing for an electronic su"stitute of a !riting in other situations such as acceptance of an amendment and cancellation "ut presuma"ly these matters can "e sorted out through application of rules and practice. <

&he process of systemi$ation involves the creation of an infrastructure "eyond that of the la! to facilitate utili$ation of electronic commerce. 5ertainly this has practical dimensions !ith respect to electronics computers and similar matters !hich this author is not %ualified to discuss "ut it also involves matters of creating rules or protocols !hich facilitate electronic commerce. In the field of letters of credit these efforts involve "oth rules of practice and systems. /ince the end of 3orld 3ar I there has "een an international movement to formulate rules of practice governing letters of credit. &he importance of this movement has "een heightened "y the a"sence of any normative positive international la! and indeed !ith the sole e#ception of the .nited /tates since the mid 19;0s of any positive domestic la! regarding letters of credit. &here are three e#amples of the process of systemi$ation of rules that illustrate this process. &hey involve t!o different phases of the letter of credit process issuance and processing. a. efault rules regarding issuance. It !as not uncommon for letters of credit that !ere sent "y electronic transmission 7descri"ed in letter of credit practice as ?teletransmission@9 to also involve sending a paper document containing the teletransmitted te#t. &his practice evolved out of the general conservative nature of "an(ers and may also have reflected some dou"ts regarding the so-called ?advanced@ methods of telecommunications and their relia"ility security and the completeness of the communication received. .nder the rules of practice prior to .5PB00 7effective 198A9 1< the default rule !here there !as such a dual transmission !as that unless the underta(ing provided that the electronic communication !as the operative instrument the paper version !as "y default regarded as the operative instrument and the electronic telecommunication simply as a courtesy. 1E In .5PB00 :rticle 1* this default rule !as reversed signaling the level of comfort of the international "an(ing operations community regarding electronic telecommunication.18 .niform 5ustoms and Practice for 1ocumentary 5redits 198A revision I55 Pu"lication 4o. B00 :rticle 1*. .5P8* 719AA9 :rticle 9 M * provided that !hen a "an( gave an electronic notification of the issuance of a credit to a correspondent "an( the ?original@ must "e sent to the correspondent. .5P*** 719<*9 :rticle B recogni$ed that the issuer might rely solely on the electronic message !ithout sending a mail confirmation. 1epending on the intent of the issuer either the paper version created "y the issuer or the version printed or created "y the correspondent or even "eneficiary from the issuerDs electronic communication might "e the operative credit on !hich the "eneficiary could rely. 3here the credit or amendment is communicated "y telecommunication or pre-advised via telefa# the operative credit !ould "e the printout of the telefa#. See also BK64E E& :0. supra note 8 at *; 7providing a comparison chart of prior versions from .5P8* to .5P<009G 1:4 &:K0C6 &'E 5C-P0E&E .5P 7I55 Pu"lication 4o. <8A9 7containing the te#ts of prior versions of the .5P9.
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.5PB00 :rticle 1*7a9 providedJ

3hen an issuing "an( instructs a "an( 7advising "an(9 "y any teletransmission to advise a credit or an amendment to a credit and intends the mail confirmation to "e

&his s!itch of the default rule !as a significant moment in the electrification of letters of credit indicating the !illingness of "an(s to assume that transmission of their underta(ings electronically !as the norm. b. !rovision regarding originality and authentication of docu"ents. :s a result of the active involvement of the then leading figure in the field of letters of credit -r. Bernard 3he"le the then 5hair of the I55 5ommission on Ban(ing &echni%ues and Practice in the movement to facilitate electronic data interchange as e5ommerce !as (no!n at the time the provisions of .5PB00 !ere designed to provide support for the possi"ility of electrification. &hese provisions appear in .5PB00 :rticle ** 7198A9. .5PB00 :rticle **7c9 provided that ?unless other!ise stipulated in the credit "an(s !ill accept as originals documents produced or appearing to have "een producedJ "y reprographic systemsG "y or as the result of automated or computeri$ed systemsG as car"on copies if mar(ed as originals al!ays provided that !here necessary such documents appear to have "een authenticated.@ &his provision addressed the %uestion of performance and the presentation of documents. It attempted to accommodate the movement to!ards !hat !ere called ?automated or computeri$ed systems@ and re%uired that "an(s accept as ?originals@ documents !hich produced !ere produced or appeared to have "een produced "y either ?reprographic systems@ or as a result of automated or computeri$ed systems. 3hile the motive !as !ell intended the drafting left much to "e desired. &his provision !as ta(en for!ard into the ne#t provision of the .5P .5P;00 :rticle *0 7199B9.19 &his provision addressed several %uestions including !hat could also "e accepted as an original document ho! a document could "e signed and !hat constituted a ?copy@.
the operative credit instrument or the operative amendment the teletransmission must state ?full details to follo!@ 7or !ords of similar effect9 or that the mail confirmation !ill "e the operative credit instrument or the operative amendment &he issuing "an( must for!ard the operative credit instrument or the operative amendment to such advising "an( !ithout delay the teletransmission !ill "e deemed to "e the operative credit instrument or the operative amendment and no mail confirmation should "e sent unless the teletransmission states ?full details to follo!@ 7or !ords of similar effect9 or states that the mail confirmation is to "e the operative credit instrument or the operative amendment.

.5PB00 art. 1*7a9 7198A9. .5P ;00 :rticle *0 7"9 provided that ?.nless other!ise stipulated in the 5redit "an(s !ill also accept as an original document7s9 a document7s9 produced or appearing to have "een producedJ 7i9 "y reprographic automated or computeri$ed systemsG as car"on copiesG provided that it is mar(ed as original and !here necessary appears to "e signed. : document may "e signed "y hand!riting "y facsimile signature "y perforated signature "y stamp "y sym"ol or "y any other mechanical or electronic method of authentication.@ /u"section 7c9 continuesJ ? 7i9 .nless other!ise stipulated in the 5redit "an(s !ill accept as a copy7ies9 a document7s9 either la"eled copy or not mar(ed as an original - a copy7ies9 need not "e signed. 7ii9 5redits that re%uire multiple document7s9 such as ?duplicate@ ?t!o fold@ ?t!o copies@ and the li(e !ill "e satisfied "y the presentation of one original and the remaining num"er in copies e#cept !here the document itself indicates other!ise. .5P;00 :rticle *0 7199B9. 8
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3ith respect to the %uestion of originality the pro"lem !ith the te#t as drafted !as that it raised the %uestions 7i9 !hether or not a document that !as produced or appeared to have "een produced "y a computer had to "e mar(ed as an original 7ii9 ho! it !as that it could "e determined !hether or not a document !as produced "y reprographic automated or computeri$ed systems and 7iii9 the impact of such a rule on a practice !hich is founded on the e#amination of documents ?on their face@. In a series of cases the courts at first concluded that the lac( of originality !as a "asis for refusal even regarding documents !hich appeared on their face to "e originals.*0 &his controversy led to an ?opinion@ "y the I55 Ban(ing 5ommission that in effect re!rote or reinterpreted the provisions in .5P;00 !hich !ere in turn incorporated into .5P<00 :rticle 1<.*1 &hese decisions caused considera"le controversy throughout the !orld and lead to enormous disruptions of trade and commerce as !ell as considera"le litigation and it too( considera"le measures on the part of many to sort out the resulting mess. : lesson to "e learned from this is that inapt drafting or overly am"itious drafting can cause more harm than good. c. #ules of practice regarding $C electrification. : part from the rather crude attempts in .5PB00 and .5P;00 to accommodate electronic presentation little !as done in the .5P until the late 1990s. &he .niform 6ules for 1emand ,uarantees 7.61, B;89 7199*9 accommodated electrification !ith an e#pansive definition of ?!riting@.** &he first serious attempt to provide rules for electronic presentation !as in the International /tand"y Practices 7I/P989.*A It provides definitions that can "e used !here an &his +ourney is detailed in James E. Byrne &'E ?C6I,I4:0@ 1C5.-E4&/ 5C4&6C=E6/K 719999 and mar(ed "y decisions such as %lencore &ntl A% v. Ban' of China 5ourt of :ppeal 75ivil 1ivision9 H199<I 1 0loydNs 6ep 1A; and (redietban' Antwerp v. )idland Ban' !$C 199E 4os. <09 2 1*A 7A1 July 199E9 7.O9. I/P98 6ule B.1; places the .5P article in the conte#t of standard letter of credit practice "ut does not provide for such a mechanism to originali$e a document "y stamping a document ?original @ although it does not re+ect this usage. Instead the I/P rule indicates !hen an original is re%uired and esta"lishes a presumption that documents are original unless they are apparently copes. Even !hen they are apparently copies the rule provides that the presence of !hat appears to "e an original signature renders them accepta"le as originals. : more detailed analysis and further insights are provided in J:-E/ E. BK64E I/P98 2 .5P;00 5C-P:6E1 7IIB0P *0009. .61, B;8 :rticle *7d9 provided that ?!riting@ and ?!ritten@ included ?an authenticated teletransmission or tested electronic data interchange 7?E1I@9 message e%uivalent....@ 3hile couched in the older terminology related to e5ommerce this provision attempted to provide a rule of formality that em"raced electronic telecommunications. I/P98 !as drafted "y the Institute of International Ban(ing 0a! and Practice endorsed "y .45I&6:0 and the International 5ham"er of 5ommerce and is I55 Pu"lication 4o. ;90. 9
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I/P98 underta(ing permits or re%uires electronic presentation*B and in a provision to "e discussed in the ne#t section permits electronic presentation in one situation !here the I/P98 underta(ing does not e#pressly permit it. :s indicated the evolution of the .5P to!ards accommodation of electrification "egan !ith .5PB00 and gradually increased to the point !here the drafters of the .5P s%uarely faced the %uestion of !hat to do a"out the possi"ility of electronic performance that is the presentation of electronic documents. 6ather than revising or altering the .5P regime they decided to create a supplemental set of rules !hich !ere la"eled the e.5P.*; Criginally released in *00* as a supplement to .5P;00 they !ere revised in *00E to supplement .5P<00. &hese rules contain a fairly sophisticated scheme "y !hich "oth paper and electronic documents can "e presented "y !hich issues regarding authenticity can "e determined allocating ris( of nonreceipt of an electronic communication address %uestions related to notice of refusal originality and copies date of issuance transport and the corruption of an electronic record after it has "een presented. :s intimated !ith respect to issues of performance under letters of credit there is a significant difference "et!een commercial letters of credit and stand"y letters of credit independent guarantees and reim"ursement underta(ings. 3ith respect to the former it is e#pected that there !ill "e regular presentations of documents !hose operative original is significant. 3ith respect to stand"y letters of credit and independent guarantees it is unli(ely that there !ould "e an original document presented !hich has any uni%ue significance. In the pre e.5P attempts to accommodate letter of credit practice to electrification considera"le time and energy !as spent see(ing alternatives to order "ills of lading !hich tended to present the most serious o"stacles to the electrification of performance or presentation of documents I/P98 6ule 1.097c9 71efined &erms9 offers definitions for ?electronic record@ ?authenticate@ ?electronic signature@ and ?receipt@. I/P98 6ule 1.097c9 719989 provides that in a stand"y providing for or permitting electronic presentation ?Electronic 6ecord@ means 7i9 a record 7information that is inscri"ed on a tangi"le medium or that is stored in an electronic or other medium and is retrieva"le in perceiva"le form9G 7ii9 communicated "y electronic means to a system for receiving storing re-transmitting or other!ise processing information 7data te#t images sounds codes computer programs soft!are data"ases and the li(e9G and 7iii9 capa"le of "eing authenticated and then e#amined for compliance !ith the terms and conditions of the stand"yG ?:uthenticate@ means to verify an electronic record "y generally accepted procedure or methodology in commercial practiceJ 7ii9 the identity of a sender or source and 7ii9 the integrity of or errors in the transmission of information consentG ?Electronic signature@ means letters characters num"ers or other sym"ols in electronic form attached to or logically associated !ith an electronic record that are e#ecuted or adopted "y a party !ith present intent to authenticate an electronic recordG and ?6eceipt@ occurs !henJ 7i9 an electronic record enters in a form capa"le of "eing processed "y the information system designated in the stand"y or 7ii9 an issuer retrieves an electronic record sent to an information system other than that designated "y the issuer.@ /upplement to the .niform 5ustoms and Practice for 1ocumentary 5redits 7.5P ;009 for Electronic Presentation =ersion 1.1 7*00*9.!as aligned !ith .5P;00 7199A9. e.5P =ersion 1.1 /upplement to .5P<00 for Electronic Presentation 7*00E9 is aligned !ith .5P<00 7*00E9. 10
*; *B

under a letter of credit. :lthough attempts !ere made to provide for electrification of documents "y contract *< a"sent an international legal regime giving effect to such underta(ings the possi"ility of electronic "ills of lading that !ould "e !idely accepted "y "an(s is none#istent.*E 0eading figures in the .5P !orld attempted to circumvent these limitations "y pressing for documentation !hich did not re%uire uni%ue originality particularly in the form of a so-called ?sea !ay"ill@. 3hile it !as not entirely clear !hat !as the character of this underta(ing it !as largely understood to "e a receipt for the goods and a contract for carriage "ut not a document representing title to or control of the goods. :s a result it could not "e said to "e ?negotia"le@. 4or !as there any o"ligation on the part of the carrier to deliver the goods to the person entitled under the document such that that person could itself issue a delivery order re%uiring such delivery to the holder of the order. .nder a sea !ay"ill the contractual o"ligation of the carrier !as to deliver the goods to the named consignee !ithout more. Possession of the document !as irrelevant !ith respect to this o"ligation. 3hile .5P;00 contained :rticle *B regarding sea !ay"ills carried for!ard in .5P<00 :rticle *1 these provisions !ere not !idely used and have "een largely "ypassed. &he e.5P solution !as relatively simple namely to permit the presentation of "oth paper and electronic documents under the same credit. &his approach caused some practical pro"lems regarding presentation *8 the time !ithin !hich a notice of refusal must "e given *9 and !hether a

&he e#periments "egan !ith the efforts of 5hase -anhattan Ban( to provide for electronic "ills of lading in 5BC0 a pro+ect that foundered on the un!illingness of other "an(s to support a system operated "y a competitor and the un!illingness of 0loyds of 0ondon to insure the process due to the a"sence of any "asis on !hich to determine potential ris(. &hey continued to /3I)&Ds Bolero a pro+ect that !as "ased on a contract to deliver the goods rather than a statutory scheme em"racing electronic "ills of lading. :s should have "een o"vious to a first year la! student private contracting !ould not ans!er the pro"lems of priority in the case of insolvency. :n interesting al"eit local e#ception e#ists !ith respect to the ./ mar(et for cotton !arehouse receipts in !hich there is a federal statute supporting electronic !arehouse receipts. &he limited nature of the mar(et ma(es such a device possi"le. e.5P :rticle e; 7Presentation9 permitted documents to "e presented separately and at different times re%uired an electronic address for electronic presentation and re%uired that it "e possi"le to identify the credit under !hich the document !as presented. e.5P :rticle eE 74otice of 6efusal9 imposed a re%uirement that the "eneficiary present a notice of completeness signaling that the presentation !as ready to "e e#amined. It also provided for disposal of refused electronic records !here no instruction regarding their disposition !as forthcoming !ithin A0 calendar days. 11
*9 *8 *E

*<

presentation can occur "y means of a hyperlin(.A0 It !as also necessary to formulate a definitional distinction "et!een paper documents and electronic documents. In .61, E;8 7*00E9 the current iteration an attempt has "een made to address issues that arise !hen electronic presentation is permitted "ut there is no e#pansion on the e.5P and less accommodation than is present in I/P98.A1 :lthough rules have played a role in the electrification of 05s most of the !or( has "een accomplished through standardi$ation. In this regard /3I)& a cooperative organi$ation created "y international "an(sA* has pursued an agenda encouraging electronic messaging so as to reduce paper and to increase the dependa"ility and authenticity of such communications. In this regard it has "een highly successful and has created a set of message types regarding letter of credit related communications. &he protocol surrounding these communications as indicated have to a certain e#tent influenced the practice related to letters of credit as is inevita"le not!ithstanding many disclaimers on the part of /3I)& to do so. &o a certain e#tent this process has supplanted the role of forms as a means of standardi$ation although !ith regard to certain rules of practice particularly related to stand"ys and independent guarantees the role of forms retains its significance "ecause /3I)& formatting is essentially a "lan( slate. In the last year /3I)& has initiated a process to develop messages specifically designed for stand"y letters of credit and independent guarantees !ith the intention of replacing the free formatted messages currently in use !here such underta(ings are issued or processed electronically. STAGE : Acce!tance

e.5P :rticle e< 7E#amination9 treats a hyperlin( that is accessi"le as if it is a document presented. .61, E;8 :rticle 1B7c9 7Presentation9 attempts to operate as a mini e.5P re%uiring that format the system for data delivery and the electronic address "e specified and providing default rules !here this information is not specified or the e1ocument cannot "e authenticated. .61, E;8 :rticle 1B7c9 says that ?!here the guarantee indicates that a presentation is to "e made in electronic form the guarantee should specify the format the system for data delivery and the electronic address for that presentation. If the guarantee does not so specify a document may "e presented in any electronic format that allo!s it to "e authenticated or in paper form. :n electronic document that cannot "e authenticated is deemed not to have "een presented.@ :rt. 1B7d9 provides ?!here the guarantee indicates that a presentation is to "e made in paper form through a particular mode of delivery "ut does not e#pressly e#clude the use of another mode the use of another mode of delivery "y the presenter shall "e effective if the presentation is received at the place and "y the time Hin compliance !ith this articleI.@ :nd :rt. 1B7e9 provides ?!here the guarantee does not indicate !hether a presentation is to "e made in electronic or paper form any presentation shall "e made in paper form. &d. 7*0109.
A* A1

A0

/ee supra note 9. 1*

&he accepta"ility of electrification of a field is essential for the adoption of any program of electrification. 3hile it is relatively easy to create a legal frame!or( rules and systems it is much more difficult to mandate mar(et acceptance in any effective manner. &he e.5P dre! upon much of the !isdom and learning in place at the time to provide parties to letters of credit !ith a frame!or( and structure that supported electronic presentations. :s indicated it !as this aspect of the letter of credit process !hich had "een most resistant to electrification. &o date to the (no!ledge of the author "ased on glo"al informal surveys there has "een one instance in !hich these rules !ere utili$ed and that one instance !as a mista(e in !hich the "an( utili$ing the rules did not permit presentation of an electronic document.AA In the field of letters of credit this process of acceptance is to a considera"le e#tent a matter of comfort "oth !ith respect to the "an(s issuing letters of credit their customers the applicants and "eneficiaries as !ell as various correspondent "an(s that play a role in the letter of credit process. &he classical illustration of this point arose in the conte#t of drafting the .4 05 5onvention. /ince this document related to independent guarantees and stand"y letters of credit underta(ings not re%uiring uni%ue documents it !as ta(en for granted "y attorneys and legal scholars unfamiliar !ith letter of credit practice that it !ould "e possi"le and indeed desira"le to provide as a default rule that unless the underta(ing provided other!ise presentation of an electronic document complied. &he difficulty ho!ever !as that this did not correspond !ith either practice or the e#pectation of issuers of stand"ys or independent guarantees. &heir e#pectation !as that a paper document must "e presented even though there !as no particular desira"ility of a piece of paper or any particular advantage in terms of authenticity rather than an electronic document. :s a result any rule that so provided !ould either "e continually varied a clear sign that the rule is !rong or there !ould "e another reason for refusing to invo(e application of the legal scheme !hatsoever. :s a result as indicated the .4 05 5onvention and corresponding provisions in 6evised .55 :rticle ; avoided ta(ing a position !ith regard to the default rule as to !hether paper or electronic documents !ould "e re%uired and left it simply to %uestions of practice. &his approach !as !ise "ecause the other default rule !ould have unfortunately have hindered the evolution to!ards an electronic default rule. :n important insight into the frontiers of this issue is contained in I/P98 6ule A.0< 75omplying -edium of Presentation9.AB &his rule !as drafted from the perspective of the e#ercises !hich &his !as made "y the Oorean E#change Ban( in 1ecem"er *010. ePresentation documents surrounding the 05 !hich included certificate of !eight certificate of analysis as !ell as the "ill of lading and insurance certificate !ere handled through BoleroNs trade platform. See (*B issues first paperless $C under eUC! &rade )inance -aga$ine 1ec. 1B *010. I/P98 6ule A.0< 75omplying -edium of Presentation9 provides that ?7a9 to comply a document must "e presented in the medium indicated in the stand"yG 7"9 !here no medium is indicated to comply a document must "e presented as a paper document unless only a demand is re%uired in !hich caseJ 7i9 a demand that is presented via /3I)& tested tele# or other similar authenticated means "y a "eneficiary that is a /3I)& participant or a "an( compliesG other!ise 7ii9 a demand that is not presented as a paper document does not comply unless the issuer 1A
AB AA

produced revised .55 :rticle ; and the .4 05 5onvention and !as intended to accommodate "oth te#ts. 6ule A.0< provided that the norm !as that there !ould "e presentation of a paper document.A; It !as of course recogni$ed that the underta(ing could provide for presentation of electronic documents. It should also "e recogni$ed that there are a num"er of stand"y letters of credit that allo! for electronic presentation and even for presentation "y means of telefa#.A< &he nota"le e#ception is a situation !here a stand"y letter of credit re%uired presentation only of a demand !here the "eneficiary !as an institution !ith access to authentica"le communications. /tandard practice !as that in such a situation there !as no need to ma(e a paper presentation and indeed an e#pectation that there !ould "e an electronic presentation and no need to e#pressly so state in the underta(ing. In such a situation I/P98 6ule A.0<7"97i9 allo!s ?a demand presented via /3I)& tested tele# or other similar authenticated means "y a "eneficiary that is a /3I)& participant or a "an(@ !ould comply not!ithstanding the fact that there !as no provision in the independent guarantee su"+ect to I/P98 permitting presentation "y an electronic media. :s noted the I55Ds latest e#ercise in rulema(ing for independent guarantees the .61, E;8 7effective 1 July *0109 contains no parallel provision although it has copied the I/P e#tensively.AE &he lesson to "e learned from this stage of electronic accepta"ility is that attempts to mandate "y legislative fiat are "ound to fail.A8 &he degree of comfort must "e achieved not only "y those !ho ma(e independent underta(ings !hich include "an(s and financial institutions the "eneficiaries of those underta(ings one !ould permits in its sole discretion the use of that mediumG 7c9 a document is not presented as a paper document if it is communicated "y electronic means even if the issuer or nominated person receiving it generates a paper document from itG 7d9 3here presentation in an electronic medium is indicated to comply a document must "e presented as an electronic record capa"le of "eing authenticated "y the issuer or nominated person to !hom it is presented.@ I/P98 719989.
A; A<

&d.

0andlordFtenant stand"ys are a good e#ample as are underta(ings for the 5hicago 5ommodity E#change. I55 .niform 6ules for 1emand ,uarantees 7hereinafter .61,9 E;8 7*0109. Interestingly although in many respects the .61, E;8 copies provisions of the I/P it did not recogni$e the standard practice !ith respect to stand"ys that permitted electronic presentation of documents under clean stand"ys. &his evo(es the lesson gleaned from (ing Canute and the +aves a legend familiar to English schoolchildren of Oing 5anute and the 3aves in !hich Oing 5anute 7of 1enmar(9 sat on a throne on the shore of the ocean and commanded the !aves to recede !hich of course they did not. 1B
A8 AE

e#pect !ould favor the a"ility to ma(e electronic presentations "ut also those !ho are o"ligated to reim"urse the financial institutions and those in the "ac(ground !ho ma(e the transaction !or(. It is no great surprise that the normal conservative character of commerce and finance !ould slo! do!n the acceptance of electronic telecommunication in this field. It is interesting to note that an end-run to !hat might "e perceived to "e a log+am is "eing orchestrated "y "an(s and /3I)& through the mechanism of a ?&/.@ or trade services utility. &his approach is in part a reaction to the fairly dramatic decrease in the num"er of commercial letters of credit that are "eing issued and the a"andonment of this instrument in favor of either commercial stand"y letters of credit or open account underta(ings. &his movement parenthetically is li(ely to "e accelerated in the event that the ris( !eighting capitali$ation proposals inherent in Basel I= are implemented assigning a ris( !eighting of 100 percent to commercial letters of credit as !ell as stand"ys and independent guarantees. In that case it is unli(ely that sophisticated customers !ould "e prepared to tolerate the increasing comple#ity of the commercial letter of credit practice and !ould a"andon it !holesale either in favor of open account or commercial stand"ys. 3hile as may !ell "e e#pected traditional practitioners and the letter of credit community "emoan this development the reality is that due to the increasing layers of comple#ity letters of credit are often an e#cuse for nonpayment rather than a mode of payment. If that is the case true guarantees in insurance policies already provide ade%uate sources of nonpayment !ithout the need for the e#istence of an alternative. STAGE ": The Transformation and E#olution of the $roduct &he stage related to the transformation or evolution of the product is "ased on the notion that "y admitting and em"racing the electrification of data there is and can "e "oth a doctrinal evolution in the nature of the product and a transformation of the product itself. 3hile there is a certain degree of speculation involved in this notion and it may not "e applica"le to all products !here electrification is involved the 05 e#perience offers a glimpse of !hat can happen !hich may "e !orth consideration. :s a result three discreet e#amples are discussed. Even though the 05 itself is only at the threshold of anticipating electronic presentations it is possi"le to glimpse the impact of electrification on the 05 of the future. &he first situation !hich illustrates the potentiality of e5ommerce for the letter of credit product relates to oil fluctuation clauses. Cil is a highly volatile commodity !hose price fluctuates rapidly and !ithin a fairly !ild range of e#tremes. It is also a product for !hich letters of credit are commonly used either in the form of commercial or stand"ys letters of credit to assure or "ac( up payment. &he difficulty !ith the utili$ation of a traditional letter of credit is the e#pectation that the letter of credit !ill state a ma#imum amount. )or an oil fluctuation clause the presence of such a ma#imum defeats to a certain e#tent the purpose of the oil fluctuation credit. 3hat is !anted on the part of the "eneficiary is an underta(ing from the issuer that it !ill pay the price of the oil ho!ever it may fluctuate. :ccordingly such a letter of credit cannot state a price in a fi#ed amount "ut rather a price !hich is lin(ed to some o"+ective source "y !hich the price can "e measured. 5ommonly the lin(age is to !ell-(no!n mar(et surveys such as Plats for a given region. &he terms of the letter of credit might provide a specific amount and then

1;

state that not!ithstanding this amount the underta(ing is to pay the current mar(et value as indicated in the applica"le Plats pu"lication for the period. 3hen a "an( issues a letter of credit containing an oil fluctuation clause the %uestion arises !hether or not such a clause is enforcea"le and the underta(ing containing it constitutes a letter of credit. &here may "e other issues regarding such a clause on the level of the safety and soundness of the provision "ut the operative legal %uestion is !hether or not such a clause is possi"le !ithin an underta(ing denominated as a Pletter of credit.PA9 &he pro"lems !ith an oil fluctuation clause arise from the notion that the letter of credit ought to contain all of its provisions !ithin its Pfour corners.P Put another !ay the notion !ould "e that reference to a source outside the conte#t of a letter of credit constitutes a non-documentary condition rendering the underta(ing something other than a letter of credit namely a simple contract to !hich to use enforcement the argument of indefiniteness or uncertainty may "e raised. In the same vein it may "e alleged that a letter of credit is a PdefiniteP underta(ing and that such a clause renders it fatally indefinite. In assessing the validity of these claims it must "e as(ed !hether or not it is possi"le to turn to o"+ective sources in order to determine the character of an underta(ing. &he clearest e#ample of such a provision !ould "e the %uestion of !hether or not the interest that may "e charged in a promissory note !hich is a negotia"le instrument can "e lin(ed to an o"+ective formula such as a given "an(Ns pu"lished prime "an( rate or "ased on a calculation predicated on ../. &reasury o"ligations of a certain duration. It has long "een settled that o"+ective criteria "y !hich a calculation may constitute a proper reference for an instrument that retains the element of negotia"ility.B0 By analogy the same argument can "e made !ith respect to the letter of credit. 6eference to an o"+ective and readily availa"le inde# is not something that renders the underta(ing o"scure or indefinite and is not Pnon-documentary in the sense that it is possi"le to ma(e an o"+ective verification of the data. &here is little difference "et!een an underta(ing to pay at a rate calculated if one !ere to provide a photocopy of the plat rate and a situation !here the "an( &he safety and soundness concerns relate to !hether the o"ligation is properly reflected on the "oo(s of the "an( and !hether it is ade%uately captiali$ed. See Taylor v. #oeder A<0 /.E.*d 191 7=a. 198E9 7concluding that a note providing for a varia"le rate of interest not ascertaina"le from the face of the note is not a negotia"le instrument.9 &he holding of this case !as !ithin months reversed "y the =irginia legislature and the -odel 5ode provision on !hich it !as "ased !as superseded !hen =irginia adopted the 1990 -odel 5ode effective in 199A !hich provides that ?Interest may "e stated in an instrument as a fi#ed or varia"le amount of money or it may "e e#pressed as a fi#ed or varia"le rate or rates. &he amount or rate of interest may "e stated or descri"ed in the instrument in any manner and may re%uire reference to information not contained in the instrument. If an instrument provides for interest "ut the amount of interest paya"le cannot "e ascertained from the description interest is paya"le at the +udgment rate in effect at the place of payment of the instrument and at the time interest first accrues.@ .55 A-11*7"9 7*00*9. 1<
B0 A9

determines !hat constitutes that rate. :lthough there is some difference the "an( must ma(e determinations that are technically not documentary regarding the date and time of presentation and !hether or not it !as timely or !hether or not in some stand"ys an advanced payment !as made to an account in the "an( or an advanced payment guarantee or stand"y !as lodged !ith the "an(.B1 :ccordingly it is possi"le to lin( the underta(ing !ith matters !hich can "e o"+ectively verified.B* &here is no reason that this data capa"le of e#ternal verification must "e em"odied itself in a paper format and not "y means of electronic determination. :s a result it !ould "e entirely appropriate for an amount to "e determina"le "ased upon reference to a source !hich is availa"le electronically. In a similar vein it may "e as(ed !hether or not verification of the o"+ective accuracy of a representation might not "e made electronically and !hether or not that verification might constitute a "asis for refusal. &o give an e#ample if a letter of credit called for a statement or document to the effect that goods !ere laden on "oard a named vessel at a given location on a certain date it is possi"le "ased on sources no! availa"le and availa"le electronically to determine !hether or not that given vessel !as at the indicated location on the given date. In such a situation it may "e as(ed !hether or not an issuer or guarantor of an independent underta(ing could refuse payment even if the document presented demanding payment contained terms !hich complied !ith the terms and conditions of the letter of credit. .nder current la! and practice there is to a certain e#tent an ans!er to this %uestion. &he ans!er is that it is availa"le to the issuer or guarantor to refuse payment predicated on letter-ofcredit fraud or a"use.BA I/P98 6ule B.11 74on-1ocumentary &erms or 5onditions9 7c9 providesJ ?1eterminations from the issuerDs o!n records or !ithin the issuerDs normal operations include determinations ofJ 7i9 !hen !here and ho! documents are presented or other!ise delivered to the issuerG 7ii9 !hen !here and ho! communications affecting the stand"y are sent or received "y the issuer "eneficiary or any nominated personG 7iii9 amounts transferred into or out of accounts !ith the issuerG and amounts determina"le from a pu"lished inde# 7e.g. if a stand"y provides for determining amounts of interest accruing according to pu"lished interest rates.@ I/P98 719999. See, e.g. (orea *,change Ban' v. Standard Chartered Ban' /uit 4o. 1<* of *00B 76E,I/&6:6D/ :PPE:0 4o. A0E of *00B9 H/ingaporeI 7holding that an oil price fluctuation clause that is lin(ed to a pu"lished ta"le and that operates !ithout amendment controls over a specific amount and a specific tolerance stated in the appropriate /3I)& )ields for amount and amount tolerance so that the amount availa"le under the credit can "e greater or lesser than that stated9. )or further analysis see James E. Byrne 2 5hristopher /. Byrnes :44.:0 /.6=EK C) 0E&&E6 C) 56E1I& 0:3 2 P6:5&I5E AE< 7Institute of International Ban(ing 0a! 2 Practice *00<9. 1E
B* B1

&he %uestion in such a situation !ould then come to one of !hether or not the guarantor or issuer had met its "urden of proving that the recital or representation !as fraudulent and this !ould come do!n to a matter of proving the relia"ility of the data and its voracity that gave rise to the information recited. &he fact that it is availa"le electronically should not in itself defeat the admissi"ility of such evidence !hich ought to "e treated in the same mode as !ould a representation in a paper medium. &hat %uestion ought to "e resolved on the relia"ility of the medium and the availa"ility of other evidence in support of the assertion rather than the format in !hich the information is contained. &his %uestion arose in the conte#t of a recent case )A! )arine $td. -. China Construction Ban' Corp.BB In that case a letter of credit !as issued to pay for a vessel charter in connection !ith the shipment of goods. &he "an( alleged that there !as 0etter of 5redit )raud or :"use "ased on data regarding the location of the vessel that it o"tained from a !e"site. &he court ho!ever refused to allo! this evidence to "e admitted holding that ?HtIhe authoritativeness of the 3e" site on !hich Hthe "an(I relied regarding the location of plaintiffDs vessel !as %uestiona"le and not an appropriate su"+ect of +udicial notice.@ 3hile there may have "een particular deficiencies !ith respect to the evidentiary proffer there should not in principle "e any o"+ection to referral to electronic data to determine fraudulent conduct. Cf course the issuer or guarantor must prove the e#istence of 0etter of 5redit )raud if it refuses on that ground a presentation that complies on its face !ith the terms and conditions of the independent underta(ing.B; In addition the further %uestion is raised as to !hether or not the underta(ing of an issuer or guarantor could "e conditioned on corresponding data "eing contained in a given "ase. &he point of such a re%uirement or condition !ould "e that it !ould no longer "e necessary for the issuer or guarantor to prove that the information contained in the data"ase !as true or that the "eneficiary or a person providing this information to the "eneficiary committed PfraudP "ut simply a %uestion of !hether or not the data or representations reflected in the documents presented corresponded !ith the re%uirements of the credit. In this sense the re%uirements of the credit !ould include not simply the statements contained in the credit "ut also correspondence !ith data"ases regarding those statements.
BA BB

See .4 05 5onvention :rts. 19 and *0 and .55 ;-109 7*0009.

E0 :.1.Ad B0B 74.K. :pp. 1iv. *0109 affd per curia" .*010 4.K. :pp. 1iv. 0EQI/ 889E 74.K. :pp. 1iv. 1st 1epNt 4ov. A0 *01099. &he court concluded that &ransferee -:P -arineDs conduct in see(ing a change in the letter of credit to reflect that it !as for the shipping service rather than for the cargo and in see(ing rapid payment. It further stated that &ransferee did not improperly attempt to see( payment despite (no!ledge that more e#tensive documentation !as re%uired under the letter of credit issued in favor of the purchaser of the cargo inasmuch as the o"ligations under &ransfereeDs letter of credit and the underlying sale of the cargo !ere independent &ransferring Ban( Banca -onte failed to raise an issue of fact !ith respect to the alleged falsity of the documentation presented "y plaintiff. &he )A! court ruled that presentment documents necessary for plaintiff to dra! on its transfer letter of credit !ere reasona"le.
B;

/ee .4 05 5onvention :rticle 19 and ./ 6evised .55 /ection ;-1097a9. 18

&he great advantage of such an approach is that it ma(es availa"le to the issuerFguarantor and correspondingly the applicant a valua"le tool against "eneficiary fraud or a"use. )rom the perspective of the "eneficiary the %uestion is !hether or not this re%uirement poses a su"+ective or discretionary "asis "y !hich refusal can "e defended. 3here the source is not su"+ective it !ould seem that it !ould not. &he o"vious "asis for o"+ection to such a provision !ould "e the doctrine of the independence or a"straction of the letter of credit underta(ing. &hat a"straction ho!ever used !ith respect to factual determinations !hich !ould re%uire reference to ultimate facts !hich admit of varying interpretations and !hich re%uire an e#ercise of +udgment. It has long "een recogni$ed that although there is in a limited sense a factual in%uiry as to !hether or not a given document contains certain terms that are in compliance !ith the terms and conditions of the independent underta(ing that this in%uiry is entirely consistent !ith the independence principle and indeed constitutes the very nature of the independent "ut conditional underta(ing. &here is no inherent reason !hy this process of e#amination and determination of compliance must necessarily "e limited to a determination of terms and conditions contained in the letter of credit or independent guarantee itself. &here are of course certain limits imposed "y the notion of fair play namely that one cannot "e e#pected to have to guess !hat are the re%uirements of the letter of credit or independent guarantee. :s to that %uestion the failure of the underta(ing to so state !ould render it not an independent underta(ing. But !here the underta(ing contains a statement or re%uired statement regarding something and the further re%uirement that this "e consistent !ith data contained in a certain o"+ective and relia"le data"ase an entirely different regime entails. -oreover it has long "een recogni$ed that 05 )raud or :"use is an e#ception to the independence principle. :s a result it may "e speculated that the letter of credit of the future !hile remaining independent in a certain form of assurance of payment nonetheless offers to all parties an enhanced a"ility to provide assurance of actual performance reducing ris( of fraud and e#pense inherent in the transaction. /imilar matters may arise !ith respect to determinations of the o"+ective compliance of the goods !ith certain norms as the result of actions "y testing agencies and !hether or not the goods are actually laden on "oard a given vessel etc. &he possi"ilities are endless. &he limits are the o"+ectivity of the source and a matter of encompassing or encapsulating them !hich assures the integrity of the underta(ing. Into this "rave ne! !orld of electronic letters of credit or independent guarantees it is possi"le to pro+ect a more dependa"le more certain less e#pensive and more efficient mechanism to assure payment.

19