1 For a clear recognition of the insufficiency of compensatory damages, see British Columbia Saw-mill Co v Nettleship (1868) LR 3 CP 499, 506: ‘[A] failure of an engagement to pay acceptance at maturity...may cause the destruction of the creditor’s trade; ... the debtor may know that inevitable ruin will be the result [of the non-acceptance]. And yet what in that case is the measure of damages which the creditor is entitled to recover? Has it ever been held to be the actual amount of the damage sustained? Certainly not’. Hadley v Baxendale (1854) 9 Ex Ch 341 still remains the ruling precept on the yardstick for measuring damages arising from a breach of contract, but is well elaborated upon in Jackson v Royal Bank of Scotland  2 All ER 71; Satef-Huttenes Albertus SpA v Paloma Tercera Shipping Co SpA (The Pegase)  1 Lloyd’s Rep 175; Koufos v Czarnikow Ltd (The Heron II)  1 AC 350; Vitoria Laundry Ltd  2 KB 528; Addis v Gramophone Co Ltd  AC 488, 494, 504; Wertheim (Sally) v Chicoutimi Pulp Co  AC 301, 307; Simpson v London and North Western Ry Co (1876) 1 QBD 274; Engel v Fitch (1868) LR 3 QB 314, 330; Howard v Manufacturing Co, 139 US 199, 206; Baltimar Aps Ltd v Naider & Biddle Ltd  3 NZLR 129, CA.
2 Under s 3 (1) of the Bills of Exchange Act 1882, in the UK, a ‘bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer’. The provisions of the statutes are materially the same as those currently in force in the individual Commonwealth countries: e.g., Negotiable Instruments Act 1881 (India); Bills of Exchange Act No 34 of 1964 (South Africa); Bills of Exchange Act 1908 (NZ); Bills of Exchange Act 1909 (Australia); Bills of Exchange Act RSC 1985 (Canada); Bills of Exchange Act, Cap 23, Laws of Singapore. In the United States, the Uniform Commercial Code—Article 3—Negotiable Instruments cover bills of exchange.
3 A bill of exchange is referred to in the marketplace as a documentary draft if shipping or other documents are attached to it for payment. Otherwise, it is a clean draft. cf. section D (6) below, as to clean credit.
4 Discussed fully in Ch 7, section D.
6 Ch 6, sections B and C.
8 ‘Date’ refers to the drawing date on the bill. However, a draft is not invalid by failing to bear the date: s 3 (4) (a), Bills of Exchange Act.
9 Presumably, the collection will be subject to the Uniform Rules for Collections (Paris: International Chamber of Commerce, 1995) (ICC Publication No 522, otherwise known as URC 522).
10 Section 54 (1), Bills of Exchange Act 1882.
11 They fall outside the scope of this book.
12 Leigh and Sillivan Ltd v Aliakmon Shipping Co Ltd (The Aliakmon)  UKHL 10,  AC 785; Guaranty Trust Co of New York v Hannay  2 KB 623, 653 (CA); Mirabita v Imperial Ottoman Bank (1877) LR 3 Ex. D 164, 170.
13 Guaranty Trust Co of New York v Hannay  2 KB 623, 653 (CA).
14 The Odessa  AC 145, 158 (PC); Sewell v Burdick (1884) 10 App Cas 74; Donald v Suckling (1868) LR 1 QB 585, 613; Mores v Conham (1610) Owen 123.
15 Gill & Duffus SA v Berger & Co Inc  1 AC 382. The case concerned the rights of a seller to payment in exchange for conforming documents under a sale of goods contract on c.i.f. terms. Lord Diplock, delivering the leading judgment of the House of Lords in favour of the seller, remarked (at p. 388) that the case, in the various lower courts, was the subject of significant ‘diversity of judicial opinion between judges of great experience in commercial law’ because ‘it had managed to acquire a deceptive appearance of complexity which an analysis of the legal nature of the duties of the buyers and sellers under the contract of sale ... should show ... it did not possess’.
16 Gill & Duffus SA v Berger & Co Inc,  1 AC 382 at 390; J Aron & Co v Comptoir Wegimont  3 KB 435, 431; Biddell Bros v E Clemens Horst Co  1 KB 214, 221 (Hamilton J.), and at p. 960 (Kennedy L.J.), approved by the House of Lords in E Clemens Horst Co v Biddell Bros  AC 18; Polenghi Bros v Dried Milk Co (1904) 10 Com Cas 42.
17 Where the drawee releases the documents to the buyer to claim the goods, notwithstanding the non-acceptance of the accompanying draft, the drawee will be liable under an implied contract to accept the bill.
18 A drawee normally incurs no liability on an unaccepted draft: Bills of Exchange Act 1882, s 53 (1); para 4 of Official Comment to UCC §3–414.
19 Section 55 (1), Bills of Exchange Act 1882; UCC §3–414 (c) read with para 3 of the Official Comment to subsection (c).
20 In the United States, the drawer must have guaranteed payment of the draft or endorsed it to the holder to be liable to the holder: see the paragraph of the Official Commented cited ibid.
21 Guaranty Trust Company of New York v Hannay  2 KB 623; Baxter v Chapman (1874) 29 LT 642; Leather v Simpson (1870-71) LR 11 Eq 398; Woods v Thiedemann (1862) 1 H & C 478, 158 ER 973; Robinson v Reynolds (1841) 2 QB 194, 203, 211–212 114 ER 76, 79, 83.
22 The debiting will only be valid if the bank had duly notified the seller of the dishonour of the accepted draft: Smith v Mercer (1867) 17 LT 317; Camidge v Allenby (1827) 6 B & C 372, 108 ER 489, s 48, Bills of Exchange Act 1882, UCC Article §3-503(a); or where the notification is excused: s 50, Bills of Exchange Act 1882, UCC Article §3-504(b).
23 As to the contexts, see section D of this chapter.
24 With regard to a pure bill of exchange situation, no such right enures to the bona fide discounter.
25 Letter of credit is also called documentary credit, especially to distinguish it from ‘clean letter of credit’ (discussed at section D (2) (g), Ch 7) and ‘standby letter of credit’ (discussed at section C (8) (c)).
26 Normally the buyer’s bank, but sometimes a correspondent of that bank operating in the seller’s country.
27 Normally the buyer, but on occasion the buyer’s bank acting on his instructions deals with the issuing bank.
29 ‘Honour’ is a generic term for the various modes in which the issuer may effect payment of the amount on the credit: see a fuller discussion in section D (4).
30 Hamzeh Males & Sons v British Imex Industries Ltd  2 QB 127, 129, CA.
32 Fuller information about the code is in para 1-18 and in the introductory section to Part III.
33 The United Nations Convention on Independent Guarantees and Standby Letters of Credit, prepared by the United Nations Commission on International Trade Law (UNCITRAL) and adopted by the General Assembly on 11 December 1995. As at today, October 2013, the Convention has been ratified by, and is in force, in only eight countries (Belarus, Ecuador, El Salvador, Gabon, Kuwait, Liberia, Panama, and Tunisia) whose banks are comparatively not substantially involved in letter of credit transactions. Excellent literature on the 1995 Convention include John F Dolan, ‘The UN Convention on International Undertakings: Do States with Mature Letter-of-Credit Regimes Need It?’ (1997–1998) 13 Banking and Finance Law Review 1.
34 For an extensive discussion, see John F Dolan, ‘Analyzing Bank Drafted Standby Letter of Credit Rules: The International Standby Practice (ISP98)’ (1999-2000) 45 Wayne Law Review 1865; Paul S Turner, ‘New Rules for Standby Letters of Credit: The International Standby Practices’ (1998–1999) 14 Banking Finance Law Review 457. A helpful discussion of the ISP from the point of view of continental Europe is found in Jen Nielson, ‘Standby Letters of Credit and the ISP98: A European Perspective’ (2000–2001) 16 Banking and Finance Law Review 163.
35 The International Chamber of Commerce, headquartered in Paris, came into existence in 1919, and dedicates itself to strengthening commercial ties among nations to enhance free markets for goods and services, and unhindered flow of capital to facilitate international business transactions: <http://www.iccwbo.org/about-icc/history/> (last accessed on 31 October 2013).
36 Formerly the Commission on Banking Technique and Practice, the Banking Commission is one of the thirteen ICC’s specialized commissions covering a wide range of areas including arbitration, commercial law, e-commerce, corporate responsibility and anti-corruption, taxation, trade and investments, transport, telecommunications, and information technology. Each of the working groups consists of business experts. In their respective fields of expertise, they issue policy statements, prepare rules, and collate and codify commercial practices to aid the realization of the ICC’s mission.
37 Published as the Uniform Customs and Practice for Commercial Documentary Credits, International Chamber of Commerce Brochure No 82, May 1933. This version drew on Uniform Regulations for Commercial Documentary Credits 1929, ICC Brochure No 74, drafted by the then ICC’s Committee on Bills of Exchange, Cheques and Commercial Documentary Credits (now the Banking Commission) and adopted at the Fifth Congress of the ICC in 1929 in Amsterdam, Holland. The 1929 edition drew on the Regulations Affecting Export Commercial Credits 1929, jointly released by an association of thirty-four US banks in New York. The banks advised their overseas correspondent banks that the Regulations governed their general responsibilities and practice in handling documents under export letters of credit: see generally Dan Taylor, The Complete UCP: Texts, Rules and History 1920-2007 (Paris: International Chamber of Commerce, 2008) (ICC Publication No. 683), 11.
38 The revisions were Uniform Customs and Practice for Commercial Documentary Credits 1951, ICC Brochure No 151 (UCP 151); Uniform Customs and Practice for Documentary Credits 1962, ICC Publication No 222 (UCP 222); Uniform Customs and Practice for Documentary Credits 1974, ICC Publication No 290 (UCP 290); Uniform Customs and Practice for Documentary Credits 1984, ICC Publication No 400 (UCP 400), reviewed by EP Ellinger, ‘The Uniform Customs: Their Nature and the 1983 Revision’  LMCLQ 578; Uniform Customs and Practice for Documentary Credits 1993, ICC Publication No 500 (UCP 500), reviewed by EP Ellinger, ‘The Uniform Customs and Practice for Documentary Credits: The 1993 Revision’  LMCLQ 377. Banks in the UK and Commonwealth countries began to express their letters of credit to the UCP since the 1962 revision.
39 UCC Revised Article 5, §5-116 (c).
40 Except to the extent of any conflict with the non-variable provisions specified in §5-116 (c) of the Revised Article 5. See also Official Comment 3 to this clause.
41 Until 2007, the body was called the National Conference of Commissioners on Uniform State Laws (NCCUSL): David Frisch, ‘Commercial Law’s Complexity’ (2011) 18 George Mason Law Review 245, 246.
42 Robert H Thouless, Straight and Crooked Thinking, rev edn (NP: Pan Books, 1974), 196.
43 Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Bank  1 Lloyd’s Rep 36, 41.
44 Formerly Art 9 (d) (i), UCP 500.
45 International Banking Corp v Irving National Bank, 274 F 122 (SDNY, 1921); Banco Nacional Ultramarino v First National Bank of Boston, 289 F 169 (D Mass, 1923).
46 Banque de L’Indochine et de Suez SA v JH Rayner (Mincing Lane) Ltd  1 QB 711 (QB and CA); Floating Dock Ltd v Hong Kong and Shanghai Banking Corp  Lloyd’s Rep 65, 79–80; Astro Exito Navegacion SA v Chase Manhattan Bank NA (The ‘Messiniaki Tolmi’)  1 Lloyd’s Rep 455, 462–3, aff’d  2 Lloyd’s Rep 217, 219–220.
47 Kumaigai-Zenecon Construction Pte Ltd v Arab Bank Plc  1 SLR(R) 277, aff’d  2 SLR (R) 1020.
48 Bank of Taiwan v Union Syndicate Corp  HKCI 86,  HKC 205.
50 UCP 600, reproducing Art 1, UCP 500.
51  1 SLR 565, para 32.
52 TW Thomas & Co Ltd v Portsea Steamship Co Ltd (The Portsmouth)  AC 1; Hamilton v Mackie & Sons (1889) 5 TLR 677; Glynn v Margetson  AC 351.
53  1 WLR 1281, 1289.
54 Fortis Bank SA v Indian Overseas Bank  EWCA Civ 58,  2 Lloyd’s Rep 33, para 76, approving Forestal Mimosa Ltd v Oriental Credit Ltd  1 Lloyd’s Rep 329, 333.
55 In the cases of Giddens v Anglo-African Produce Co Ltd (1923) 14 Ll L Rep 230; Cape Asbestos Co v Lloyds Bank Ltd  WN 27.
56 Unlike its earlier versions, the UCP 600 only recognizes a letter of credit as an irrevocable undertaking to honour a complying presentation. Professor Charles Debattista has suggested that the parties to a revocable credit may nevertheless subject the facility to the code: see his article entitled ‘The New UCP 600—Changes to the Tender of the Seller’s Shipping Documents under Letters of Credit’  JBL 329, 335. The suggestion probably ignores the fact that a revocable credit does not exist in practice.
57 For the time when a credit is considered issued, see Ch 2, section D (4).
58 Generally known as ‘confirmation commission.’
60 For a valuable survey, see Clive M Schmitthoff, ‘Confirmation in Export Transactions’  JBL 17, 20; Christopher Axworthy, ‘The Revision of the Uniform Customs on Documentary Credits’  JBL 38, 38–42.
61 These involve contract conflict of law issues, discussed in Chs 10 and 11.
62 See e.g. Credit Agricole Indosuez v Banque Nationale de Paris  2 SLR 1, discussed in Ch 2; European Asian Bank v Punjab and Sind Bank  2 Lloyd’s Rep 651, aff’d  2 Lloyd’s Rep 351; Union Bank of Canada v Cole (1878) 47 LJ CP 100.
64 Arts 7 (c) and 8 (c), UCP 600.
65 The UCC Revised Article uses ‘person’ instead of ‘bank’, since a financial institution other than a bank may be involved in the credit transaction.
66 As to confirmed credit, see section D (2).
69 Art 11 (a), UCP 400; Art 10 (a), UCP 500; Art 6 (b), UCP 600.
70 Negotiation credit: section D (5) (d) of this chapter.
71 See also section 5-102 (8), UCC Revised Article 5.
72 cf. UCP 600 Drafting Group, Commentary on UCP 600: Article-by-Article Analysis (Paris: International Chamber of Commerce, 2007) (ICC Publication No. 680) at 22. But see Art 3 (iii), UCP 290; Art 10 (a) (iv), UCP 400; Art 9 (a) (iv), UCP 500.
73 The actual days may be 30, 60, 90, 180, or 360.
74 The latter sentence comprises the engagement clause: for an illustrative wording, see Credit Agricole Indosuez v Banque Nationale de Paris  2 SLR 1.
75 Banco Santander SA v Bayfern Ltd  1 All ER (Comm) 776, aff’g  2 All ER (Comm) 31.
76 Banco de Santander v Caisse National de Credit Agricole, unreported, a decision of the Paris Court of Appeal, delivered on 28 May 1985: adverted to by Waller L.J. in his judgment in the Banco Stantander case at 782.
77 Art 11 (d), UCP 400; Arts 9 (b) (ii) and 14 (a) (i), UCP 500.
78 E Adodo, ‘The Legal Effect of Nomination under the Uniform Customs and Practice for Documentary Credits’ (2008) 23 JIBLR 231.
79 Arts 7 (c) and 8 (c), UCP 600.
80 See the authorities cited in the introduction to Part III, nn 8 and 9.
81 An example of the engagement in the Canadian case of Michael Doyle & Associates Ltd v Bank of Montreal (1984) 11 DLR (4th) 496 (British Columbia Court of Appeal) reads: ‘We hereby engage that drafts drawn in conformity with the terms of this credit will be duly accepted on presentation and duly honoured at maturity if accompanied by the specified documents’. Compare the clause with that in deferred payment credit, n. 67 and accompanying text.
82 For an example of such directions in a credit, see Societe Generale SA v Saad Trading  EWHC 2424 (Comm).  Bus LR D29, –.
83 Section 61, UK Bills of Exchange Act 1882.
84 The issue of what constitutes negotiation is discussed in Ch 10.
85 Art 9 (b) (iv), UCP 500.
86 Indian Bank v Union Bank of Switzerland  2 SLR 121 (CA, Singapore; European Asian Bank AG v Punjab & Sind Bank (No.2)  1 WLR 642; DCD Factors Plc v Ramada Trading Ltd  Bus L R 654.).
87 Current approaches to the problem are discussed in E Adodo,  SJLS 619.
88 Leonard A Fenberg Inc v Central Asia Capital Corpn, 974 F Supp 822 (1997).
89 Confeccoes Texteis de Vouzela v Riggs Nat’l Bank, 994 F 2d 851 (1993); Bank of Taiwan v Union Syndicate Corp  HKC 205; Courteen Seed Co v Hong Kong and Shanghai Banking Corp, 216 AD 495 (1926).
90 Art 39, UCP 600 expressly recognizes such a right, but points out that it has to be exercised in accordance with the relevant provisions of the applicable law. cf. UCC, s 5—114 (b): ‘A beneficiary may assign its right to part of all of the proceeds of a letter of credit, and may do so before presentation as present assignment of its right to receive proceeds contingent upon its compliance with the terms and conditions of the letter of credit’.
91 Interestingly, clauses having such effect are hardly ever seen in letters of credit texts. Nevertheless, the validity of non-assignment clauses in contracts has been considered and recognized by the House of Lords in Linden Garden Trust Ltd v Lenesta Sludge Disposals Ltd  3 All ER 417. See also Helstan Securities Ltd v Hertfordshire County Council  3 All ER 262, which was approved in Linden; Don King Productions Inc v Warren  2 All ER 218. For a comprehensive analysis of the cases, see Gerard McCormack, ‘Debts and Non-assignment Clauses’  JBL 422.
92 In the context of the present discussion, the potential debtor is the nominated bank, whilst the beneficiary is the assignor.
93 UCC, s 5–114 (c). See especially Official Cmt 3 to the subsection.
94 In the context of transferable credits, a special set of terminologies obtains: the letter of credit expressly denominated as transferable is the ‘original credit’ or ‘prime credit’; the beneficiary thereunder is termed the ‘first beneficiary’; a nominated bank that effects a transfer of the credit is the ‘transferring bank’; the party or parties to which the original credit is transferred is the ‘second beneficiary’; and a credit made available to the second beneficiary is regarded as a ‘transferred credit’.
95 In practice, especially with string contracts, a merchant will desire to conceal from his buyer and his supplier who his own customer is, so as not to be cut out in future transactions. So, a provision in the original credit specifically calling for documents to be made out in the name of the supplier, or the buyer is unlikely to be acceptable to the first beneficiary: see Benjamin’s Sale of Goods, 7th edn (London: Sweet & Maxwell, 2006), para 23–072, n 18.
96 Art 38 (h), UCP 600; Art 48 (i), UCP 500.
97 For some guidance on this important point, reference may be made to Anchore Centre Partners Ltd v Mercantile Bank, 803 SW 2d 23, 33–36 (S Ct, Missouri 1991).
98 Unless of course the credit in question is of the negotiation variety, in which case, if an assignee has given value for the requisite documents, he may himself draw on the credit.
99 cf. Art 10 (a), UCP 600; Art 9 (d) (i), UCP 500. Under the sub-Articles, the agreement of the account party is not required probably because he is not a party to the letter of credit transaction. Technically, that is correct, but it is a well established banking practice that the issuing bank will not agree to amend or modify the requirements of a letter of credit without consulting with the account party.
100 Usually, as a condition for issuance of the subsidiary credit, the bank will request the beneficiary to assign to it the proceeds of the prime letter of credit, with the consequence that upon honour of the prime credit, it will recoup the sum paid out to the supplier under the secondary credit; it will then hold the balance as a trustee of the first beneficiary.
101 The back-to-back credit is used fairly often in America and South-East Asia, though very few cases are, in varying degrees, in point: Contitrade Services Corpn v Eddie Bauer Inc, 794 F Supp 514 (1992); Bank of China v David Chan, 937 F 2d 780 (2nd Cir 1991); Mineralolhandelsgesellschaft v Commonwealth Oil Refining Co, 734 F 2d 1079 (5th Cir 1984); Association de Azucareros de Guatemala v United States National Bank of Oregon, 423 F 2d 638 (9th Cir 1970); Kingdom of Sweden v New York Trust Co, 197 Misc 431 (S Ct, NY County 1949); Erickson v Refiners Export Co, 35 NYS 2d 829 (1942). The lone Singapore case on the topic appears to be PT Adaro Indonesia v Rabobank  3 SLR 258 (Singapore, HC).
102 Benjamin’s Sale of Goods 7th edn, (London: Sweet & Maxwell, 2006), para 23—082 appears to be in doubt as to whether the proposition is settled. Raymond Jack, Ali Malek, and David Quest, in their book, Documentary Credits, 3rd edn (London: Butterworths, 2001) para 2.33, take the view that back-to-back credits are ‘perfectly acceptable in law and in practice’, but they do not say why this is so.
103 PT Adaro Indonesia v Rabobank  3 SLR 25, 264–267.
104 Hong Kong and Shanghai Banking Corpn v Kloeckner & Co  2 QB 514.
105 For illuminating analyses of the distinction between the standby credit and the traditional guarantee, see, e.g., East Girard Savings Association v Citizens National Bank, 593 F 2d 598 (5th Cir, 1979); Bank of North Carolina v Rock Island Bank, 570 F 2d 202 (7th Cir, 1978); Prudential Insurance Company of America v Maquette National Bank of Minneapolis, 419 F Supp 734 (1976); Wichita Eagle and Beacon Publishing Co v Pacific National Bank of San Francisco, 493 F 2d 1285 (9th Cir, 1974); Gilchrist B. Stockton v First Union National Bank of Florida, 700 So 2d 394 (Ct App Fla, 2001); Republic National Bank v Northwest National Bank, 578 SW 2d 109 (Tex, 1978).
106 Useful assistance may be had from East Girard Savings Association v Citizens National Bank, 593 F 2d 598 at 601–602 (5th Cir, 1979); Wichita Eagle & Beacon Pub. Co, Inc v Pacific National Bank of San Francisco, 493 F 2d 1285 (9th Cir, 1974), where it was held that the instrument in question was an ordinary guarantee rather than a letter of credit because its substantive provisions ‘neither evidenced an intent that payment be made merely on presentation of a draft nor specified the documents required’ to show the occurrence of the relevant event.
107 The Uniform Rules for Demand Guarantees, promulgated by the International Chamber of Commerce in 1991 as ICC Publication No 458. For an excellent discussion of the Rules, see Roy Goode, ‘The new ICC Uniform Rules for Demand Guarantees’  LMCLQ 190.
108 These are Ecuador (18 June 1997); Panama (21 May 1998); El Salvador (31 July 1998); Kuwait (28 October 1998); Tunisia (8 December 1998); Belarus (23 January 2002); Gabon (15 December 2004); and Liberia (16 September 2005).
109 Czarnikow-Rionda Sugar Trading Inc v Standard Bank London Ltd  1 All ER (Comm) 890; Edward Owen Engineering Ltd v Barclays Bank Int’l Ltd  QB 159; RD Harbottle (Mercantile) Ltd v National Westminster Bank Ltd  QB 146; Discount Records Ltd v Barclays Bank Ltd  1 WLR 315.