The lmpact of Article 16 (b) On The Letter of Credit Contract

Abstract

Based on the UCP 600 sub article l6(b), this paper focuses on the concept of seeking applicant waiver in respect of discrepant documents tendered under the letter of credit, in order to set up the appropriate course of action to be followed on the basis of strict compliance principle. The paper discussed the validity of approaching applicant seeking waiver and put it clear that; the prevailing banking practice in this respect is inconsistent with the nature of the letter of credit, the privacy of contract and Nemo dat rule as well. One of the primary sources is the Uniform Customs and Practice for Documentary Credits (UCP 600) as well as the doctrine of strict compliance, contract theory. Other primary sources comprise court decisions associated to the UCP rules. The secondary sources involve text books and review articles describing, explaining and evaluating the applicable rules and related court decisions. The methodology used in this paper involves analysis of the UCP rules, related case law as well as associated literature reflecting the views of experts. Consequently; the paper suggested that issuing bank has to stick tightly to the strict complying principle when discharging its payment obligation and thereby restore the validity of the letter of credit as a powerful payment instrument in cross borders’ transactions.