Adjudicating Letter of Credit-Related Cases

The Provisions on Several Issues Concerning the Trial of Letter of Credit Disputes (关于审理信用証纠纷案件若干问题的规定), China's first letter of credit-related law, has attracted widespread attention in the banking sector and judicial circles. Not only do the new provisions raise the image of China's banking industry, but they also pose new challenges for domestic enterprises and banks in relation to letter of credit transactions.

By Edward E. Lehman and John Lee, Lehman, Lee & Xu, Beijing

The letter of credit (LC) is one of the most important settlement methods used in international trade, with approximately 15% of all international transactions using LCs to settle deals. Since its issuance in 1993, the Uniform Customs and Practice for Documentary Credits (UCP 500), published by the International Chamber of Commerce, has generally been accepted and observed in numerous countries in relation to international LC transactions. However, the UCP 500 does not provide a legal framework for defining the nature of the legal relationship between an applicant and an opening bank, in the application process for the establishment of an LC, or rules for determining and remedying instances of LC fraud.