CAN AN LC BE GOVERNED BY BOTH LOCAL LAW AND UCP?

QUESTION

Dear Mr. Old Man,

I appreciate your insights on the following matter:

Can a Letter of Credit (LC) be subject to both the laws of a specific country and the Uniform Customs and Practice for Documentary Credits (UCP)?

Best regards,

Zeev

ANSWER

Dear Zeev,

In my 35  years of experience in trade finance, I have yet to come across an LC that explicitly states it is subject to both UCP rules and local law.

The UCP provides standardized rules for banks handling LC transactions when the LC specifies that it is subject to UCP. However, local law comes into play primarily in the event of a dispute between the issuing bank and the presenter.

Typically, stating that an LC is subject to UCP 600 is sufficient. While it is not incorrect to also mention that local law applies, it is generally unnecessary.

In practice, unless otherwise agreed, disputes between the presenter and the issuing bank are usually resolved by the courts of the issuing bank’s country, applying its governing law. Likewise, disputes between the presenter and the confirming bank are typically settled in the confirming bank’s country under its governing law.

Finally, it’s important to note that local law takes precedence over UCP in legal matters.

Kind regards,

Mr. Old Man