The resolution for LC disputes in viet nam

ABBREVIATION ICC: International Chamber of Commerce‘s Commission L/C: Letter of Credit B/E : Bill of Exchange LCA: Law of Commercial Arbitration OCA: Ordinance of Commercial Arbitration

HO CHI MINH CITY UNIVERSITY OF LAW

THE MANAGING BOARD OF SPECIAL TRAINING PROGRAMS

BACHELOR’S THESIS COMMERCIAL LAW MAJOR

THE RESOLUTION FOR L/C DISPUTES

IN VIET NAM

Student Do Thi Mai Hoang Ha Student ID 0955050051

Supervisor Dr Phan Thi Thanh Duong

HO CHI MINH CITY

2013

I hereby affirm that this thesis is my own study under the supervisor’s guidance

All of the information other than my idea to be used or quoted has been

acknowledged by means of complete references I would bear

full responsibility for my protest

31 July 2013

Do Thi Mai Hoang Ha

ABBREVIATION

ICC: International Chamber of Commerce‘s Commission

L/C: Letter of Credit

B/E : Bill of Exchange

LCA: Law of Commercial Arbitration

OCA: Ordinance of Commercial Arbitration

UCC: Uniform Commercial Code

UCP: The Uniform Customs and Practice for L/C

URR: The Uniform Rules for bank-to-bank reimbursements under Documentary Credits

eUCP:The Uniform Customs and Practice for Documentary Credits for electronic presentation

ISBP: The International Standard Banking Practice for the examination of documents under L/C

TABLE OF CONTENT

INTRODUCTION 1

CHAPTER 1: OVERVIEW OF RESOLVING DISPUTES IN L/C 6 1.1 Letter of credit (L/C) 6 1.1.1 Definition 6

1.1.2 Two fundamental principles of letter of credit transaction 6

1.1.3 Process of Letter of credit transaction 7

1.1.4 Relationships between the parties 8

1.2 Overview of resolving disputes and popular disputes in L/C 10 1.2.1 Content of dispute arising out of L/C 10

1.2.2 Principle of resolving disputes in documentary credit 11

1.2.3 Method of resolving disputes in L/C 12

1.3 Legislation system governing Letter of credit transaction 16 1.3.1 International law 16

1.3.2 National law 21

1.4 Study on Chinese, Japan and USA legislation 24 CHAPTER 2: REALITY OF SOLVING DISPUTE ARISING OUT OF L/C AND RECOMMENDATIONS FOR IMPROVEMENT 33

2.1 Reality of resolving disputes arising out of L/C in Vietnam 33 2.1.1 Reality of Vietnamese stipulation on the method of resolving disputes 33

2.1.2 Popular disputes of L/C in Viet Nam and reality of resolution 37

2.1.3 Comment on the reality of resolving disputes of L/C in Vietnam 41

2.2 Recommendation for improvement on resolving disputes in 45 2.2.1 Developing dispute resolution stipulation concerning L/C 45

2.2.2 Improving the efficiency of dispute resolution method in L/C 47

2.2.3 Some specific recommendations for participants in L/C 48

BIBLIOGRAPHY

- In term of reality:

In international payment activities, L/C method is used mostly due to the safety, harmony which meets the benefit‘s demand of participating parties However, many disputes will arise if the safety and harmony is not ensured Studying the method of solving disputes is requisite in this period when the number of disputes between Vietnamese enterprise and foreign partners increase more and more in quantity and complexity Therefore, studying the experiences of foreign law systems and relevant international rules for the improvement of Vietnamese law in this matter is necessary and meaningful

For the above-mentioned reasons, the topic ―THE RESOLUTION FOR L/C DISPUTES IN VIET NAM” is chosen for the author‘s graduation thesis Because of

time limitation, it is difficult for me to offer a perfect study in this subject Nevertheless, the author shall do the best to research as deep as possible on several typical issues including overview of resolving disputes arising out of L/C, legal framework concerning the resolution of disputes in L/C, some shortcomings and recommendations for improvement All comments and advices are always welcomed

to assist the author improve the thesis for the best contribution to legislation on L/C transaction in Viet Nam

2 A review of the research literature

In recent years, the issue of L/C have attracted many concerns not only from economic persective but also from the legal perspective Because the transaction by

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L/C can develop vibrantly only if there were a perfect legal framework Here are some remarkable books and articles:

 Associate Professor, Doctor Nguyen Thi Quy, Cam nang giai quyet tranh chap

trong thanh toan quoc te bang L/C

 M.A Nguyen Trong Thuy – Arbitrator of Vietnam International Arbitration

Center, Toan tap UCP 600 – Phan tich va binh luan toan dien tinh huong tin dung

chung tu

 Associate Professor, Doctor Hoang Ngoc Thiet (2002), National Political

Publishing House, Ha Noi, Tranh chap tu hop đong xuat nhap khau, An le trong tai va

kinh nghiem

 M.A Nguyen Ngoc Duy My, Giai quyet tranh chap thuong mai o Viet Nam

 M.A Nguyen Huyen Cuong - Judge of Economic Court in People's Court of Ha

Noi city, Thuc tien giai quyet tranh chap thuong mai quoc te - nhung kho khan vuong mac

va kien nghi

Such books and articles only focus on finding and analyzing the reason of arising disputes in the transaction of L/C and make advisings from economic aspect Currently, there are many book or reference materials for L/C, however, in economic aspect

Then, there are several researches, especially in Ho Chi Minh City University of Law, regarding some different issues of L/C including:

 Bachelor thesis of Van Thi Thu Hang (2005), Solution to improve the

effectiveness of L/C to imported goods during competitive process and globalization,

 Bachelor thesis of Le Thuy Duong (2004), Letter of credit: risks and solutiion to

reduce risk at commercial bank,

 Bachelor thesis of Phan Le Dai Guong (2003): The usual risks of transaction by L/C – solution to reduce risk,

 Bachelor thesis of Bui Thi Hong Phuong (2007): Some basic changes of UCP

600 in comparision with UCP 500,

 Bachelor thesis of Nguyen Thi Duyen (2007): UCP from reality of bank‘s

performance

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There are many thesis relating to L/C, however there are hardly the thesis which focus on the issue of resolving disputes in L/C As we know, in Vietnam, there are still not any specific law on L/C, especially on resolving the disputes in it But with the development of internationally commercial relationship nowadays, it is necessary to build and own a effective law which plays an important role in settling such disputes Thus, to inherit and absorb above-mentioned researches, the graduation thesis

―The resolution for L/C disputes in Viet Nam” hopes to supply a general

understanding of dispute resolution methods which are stipulated in law and suggest some recommendations for legal – makers to amend and supplement a specific law in L/C The author will consider them from the sides of both the parties in L/C transactions and the State agencies which must supervise them strictly to avoid

harmful impacts

3 Delimitation of thesis

The author focus on analyzing the stipulation of international practices, international custom, national law on international payment (Letter of Credit) Simultaneously, this thesis also studies some real cases relating to L/C over the world and in Vietnam when signed an internationally commercial contract

4 Purposes of the thesis

First of all, the thesis will give a general understanding of some fundamental academic issues in relation to L/C as well as the method of resolving disputes This is the first step for further research into specific regulations

Secondly, under a comparative view, the thesis will study the stipulations of documentary credit in some national laws It will be a valuable experience for the law – maker in the process of building the further stipulation necessary and suitable for the reality of Vietnam

Subsequently, the author focuses on analyzing the stipulation of Vietnamese law

on the relevant matters in order to point out its insufficiency of regulations, upon which the author will give several preliminary recommendations suitable for the circumstances in Vietnam and bringing it close to the outside legal world

5 Methodology

For the thesis‘s objective mentioned above, the author will combine various kinds

of method mainly including analytical method, synthetic method and comparative

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method Analytical method is division the whole of reseached subject into many sepatate contingents for reseaching, then their properties and nature will be found; as a result, we could understand the main complex subject coherently from understanding those parts In terms of synthetic method, from analysis‘ outcome from many aspects,

we synthesize them all and make a whole picture which could induce our subject fully and people are able to have an overview about it as well The last but not least, comparative method is used for comparing and contrasting aspects of the problems in order to find out similarities and difference for getting objective view about subjects

In chapter 1, synthetic and analytical methods were used in order to provide an overview of the dispute resolution in L/C by synthesizing information from various sources and studying the international stipulation in practices, customs or treaties relating to L/C transaction

In chapter 2, analytical method was mainly utilized for analysis Vietnamese legislation on L/C in order to find shortcomings Additionally, comparative method also used to compare Vietnamese and international practices or customs, then find suitable solutions for the shortcomings of Vietnamese Law

6 Scientific significance and the value of the thesis’s application

This thesis will be one of reference sources for all who really want to learn about L/C, especially L/C transaction in Vietnam Besides, it could be used for improving Vietnamese legislation on which is one of the most important factors inducing international payment to develop quickly and properly and restricting the adverse influence of the economy

7 The structure of the thesis

Besides the preamble, conclusion and reference material catalogue, the structure

of graduation paper comprises 2 chapters:

Chapter 1: The basic theories of resolving disputes arising in L/C

In chapter 1, author gives a general understanding of L/C from such knowledges, chapter 1 continues to study the resolution method by studying the content of dispute

in L/C, the method of resolving it After that, the author will research the applicable law Besides, Author also focuses on studying the stipulations of some countries which the international payment activities develop, such as China, America and Japan Such above theoretical issues are the premises for next chapter

- The applicant: is the buyer, the importer of the goods

- The beneficiary: is the seller, the exporter of the goods

- The Issuing Bank or Opening Bank: is the bank issuing the letter of credit on the request of the importer This is the bank representing the importer, is responsible for the exporter They are often chose and stipulated in the contract If not stipulated advance, the importer has the right to 2

- The advising bank means the bank that advises the credit at the request of the issuing bank to inform the exporter (or the seller) about the opening of the letter of credit This bank is also responsible for sending the original letter of credit, also together with all the amendment of the letter of credit to the exporter The advising bank is often the agent or the branch of the issuing bank placing in the exporter‘s country

1.1.2 Two fundamental principles of letter of credit transaction

There are two fundamental principles of LC which distinguish it from other payment instruments These are the principle of autonomy of the credit, and the

1 List of documents commonly requested in a Letter of Credit: commercial invoice: transport documents, insurance document, generalized System of Preference Certificate of Origin, packing list, inspection Certificate, weight list

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The condition to provide payment service is stipulated in Art 1,2,3,4,5 of regulations on payment operations via organizations providing payment services (issued with decision 226-2002-qd-nhnn of the governor of the state bank dated 26 march 2002) The current law does not allow the organization which is not the credit organization to supply the international payment activity due to the complex process of international payment in general and by letter of credit in particular Meanwhile, payment is not the main activity of the credit organization, therefore, the level of risk is very high This stipulation is seen suitable in this period

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doctrine of strict compliance

According to the former, LC is separated and independent on the underlying contract of sales and any other agreement from which the LC stems As a result, the bank that checks documents is concerned only with whether these documents are in conformity with the instructions stipulated in the LC The bank does not take into account nature of the contract or any whereabouts of the agreement between the LC applicant and the beneficiary Its task is only to verify the conformity of the documents tendered by the beneficiary with the LC instructions of the applicant The only one exception when bank may refuse to pay the LC proceeds to the beneficiary despite the documents being in conformity is when it is proved that the documents are forged and that the beneficiary was involved in the fraud It must be emphasised, however, that both these conditions must be met at the same time

As regards, the doctrine of strict compliance, it is a rule whereby banks are entitled to reject documents tendered by the beneficiary which do not strictly conform

to the instructions of the LC applicant, even if the discrepancies are insignificant This rule stems from the principle of autonomy mentioned above, which says that banks are concerned with documents only and not with underlying contract or goods This rule is applied very strictly by banks and by courts of law Therefore, even very minor discrepancies may serve as a ground to refuse to pay the LC proceeds to the beneficiary These discrepancies may include, for instance, literal errors, lack of spaces

or comas in goods description, difference in description of goods between the invoice and the bill of lading, and many other very minor errors

1.1.3 Process of Letter of credit transaction

It is necessary to briefly introduce how the L/C in international trade works It seems complex, as one L/C involves at least three different and independent contracts between different parties

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1 The exporter and importer sign a bill of sale contract

2 The importer applies to his bank, the issuing bank, to open a letter of credit

3 The issuing bank sends the advice of the credit to the notifying bank (advising bank)

4 The exporter is advised of the credit

5 Following shipment of the goods, the exporter presents the documents to the advising bank (the paying agent)

6 After checking the documents and confirming that they agree with the letter of credit terms, payment is made to the exporter At the same time, the advising bank sends the documents to the issuing bank and requests reimbursement for the letter of credit amount plus the advising bank's fees and expenses

7 The issuing bank sends the documents to the importer and debits his account for the letter of credit amount plus the fees and expenses of the banks involve

1.1.4 Relationships between the parties

Contract between the buyer and the seller for the sale of goods:

If the letter of credit expires without payment to the seller, the seller is entitled to claim the purchase price from the buyer upon the underlying contract, although, the buyer may deduct any losses suffered due to the failure of the seller to use the letter of credit Any disputes arising from the underlying contract will have no effect on the letter of credit due to its autonomous nature

Contract between the buyer and the issuing bank for the opening of the credit

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In order to fulfill its contractual obligations the buyer (acting as the applicant) has

to open a letter of credit at the issuing bank in favor of the seller (the beneficiary of the letter of credit) Thus, the buyer gives instructions to the issuing bank in his application, clarifying the terms and conditions under which the bank shall effect payment

By accepting the terms and conditions submitted in the application form the issuing bank enters into a contractual relationship with the buyer Under this contract the bank undertakes to issue the letter of credit and to effect payment to the beneficiary upon presentation of documents strictly in compliance with the terms and conditions of the credit This contract is independent from the contract between the seller and the buyer and ―the bank must strictly adhere to the buyer‘s instructions as set out in the application form This applies both as regards the nature of the documents against the tender of which the bank undertakes to pay the irrevocable credit and as regards any specific instruction defining the nature of the letter of credit to be effected‖

Contract between the issuing bank and the conforming bank for the making

Contract between the confirming bank and the seller for the payment

The opening of a confirmed letter of credit constitutes a bargain between the banker and the vendor of the goods, which imposes upon the banker an absolute

3 Article 9 of the UCP 500 indicates how and when the payment has to be effected by the issuing bank

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obligation to pay, irrespective of any dispute there maybe between the parties as to whether the goods are up to contract or not…‖the beneficiary can by no means look at the bank for payment and he can in no circumstances look to the applicant

1.2 Overview of resolving disputes and popular disputes in L/C

1.2.1 Content of dispute arising out of L/C

First of all, the dispute in L/C often arises in the fields of the documents whether

it is seen to be conformed to the letter of credit as requested by the buyer or the importer There are many disputes arising, for instances, disputes in B/L, disputes in commercial invoice, disputes in insurance policy, or the dispute due to the inconformity of those documents Besides, the dispute can relate to the responsibilities

of the participant in L/C transaction There are many cases developing in the process due to its complexity and accuracy It includes: dispute relating to applicant‘s responsibilities with their violation, dispute arising due to the seller‘s violation or bank‘s violation

Between the buyer and the seller for the sale of goods

Disputes between sellers and buyers in case the opening L/C of buyers is not conformed to the sale contract signed and importers try to find faults with documents

to refuse payment without good faith of receiving goods

Disputes in case sellers do not examine L/C thoroughly, accept L/C which is hard

to carry out or has articles which buyers restrain to lead the difficulty of establishing document as requested

Between the buyer and the issuing bank for the opening of the credit

Disputes between issuing banks and buyers arise in case issuing bank opens L/C contrary to the content of application for L/C

Disputes regarding the conformity of document which issuing bank based on to accept payment

Between the issuing bank and the conforming bank for making payment:

Disputes in case advising bank advises L/C which appear on their face to constitute a non - complying presentation

Disputes in case banks do not examine the documents thoroughly, discover all discrepancies of documents or various viewpoint of bank in discrepancies

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Between the confirming bank and the seller for the payment

The confirming bank can accept the documents under the reserve The documents could be tendered by faulty On this basis, the problem only arises between the beneficiary and the confirming bank, because such a contract between the confirming bank and the beneficiary is independent So the beneficiary would be bound to repay the amount on demand, if the faulty documents were rejected by the issuing bank or the applicant

1.2.2 Principle of resolving disputes in documentary credit

When resolving such dispute, it is prerequisite to comply with following principle Firstly, it must to admire the arrangement and the decision at their discretion Secondly, the parties in dispute must be treated equally in law Finally, it is very important to concern about the resolving timeline in order to ensure the most efficiently in time and cost Based on the freedom and the self – control in business and equality in the eye of law, the resolution must meet following requirements:

The principle of self – determination: this principle shows that the parties have the right to arrange the most efficient dispute resolution, such as self – negotiation, conciliation or adjudicatory forms

The principle of equality in the eye of law: the law protects the legitimate rights and benefits of parties without discriminating the positions, capital and possession The principle of conciliation: first of all both parties must self – conciliate until its result cannot be reached – by the time parties can brings a claim to the adjudicatory organ to settle When accepted this case, the adjudicatory organ also must carry out the mediation and recognize the mediation result before judgment (Art 35 of Ordinance

in resolving dispute of economic disputes case, Art.35 of Rule of procedure for arbitration proceedings and Art 35 of Proceedings Rule of Vietnamese international centers)

The principle of solving disputes immediately and timely, limit the possibility of interrupting business process The business action is ensured by the closed cycle, therefore, it can be affected by the interruption in any section Solving disputes not immediately and timely can affect to the existence and development of the business parties Moreover, it must protect the legitimate rights and benefit of parties in commercial relationship Settling the dispute timely has an enormous meaning to the

in spite of in court as stipulated in Article 7 of Ordinance of dispute procedure in commercial disputes The commercial dispute is settled in public unless keeping national secret or as party‘s legitimate request

1.2.3 Method of resolving disputes in L/C

1.2.2.1 Negotiation

This is a measure applied before litigation in case of disputes Negotiation is a process where each party involved in negotiating tries to gain an advantage for themselves by the end of the process Negotiation is intended to aim at compromise The parties can meet directly or by representative to negotiate the solution of the disputes The representation of each party - the manager, the authorized person or the attorney can take part in this dialogue

In the method of negotiation, parties have the right of free – will, equality and therefore, can express their own idea in the process of coming to final results The agreement is the expression of resolving disputes successfully

Negotiation is the measure which is simple and economical in time and cost to the parties The negotiation can express the will of parties during the resolution After reaching the compromise, both parties will keep relationship, also the prestige and the business secret

However, this measure can only be successful with the condition of good – will between parties If one of the parties is impatient or provoking, the negotiation is

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considered to fail Besides, if the conflicts are too complicated and the disputes relate

to many parties, the negotiation cannot be reached In such case, it should have the third party or a mediation parties to help settle this conflict The negotiation doesn‘t take effect in such situation

1.2.2.2 Mediation

Mediation is an informal process during which an impartial third party, the mediator, assists disputing parties in reaching a mutually acceptable agreement regarding their dispute The mediation session is intended to identify pertinent issues, clarify any misunderstandings, explore solutions, and negotiate an agreement The mediator is not a judge and does not render a decision or impose a solution on any party Rather, the mediator helps those involved in the dispute talk to each other, thereby allowing them to resolve the dispute themselves The mediator manages the mediation session and remains impartial At the mediation session all parties present a summary of their points of view Attorneys for the parties may be present Typically, the mediator will meet privately (caucus) with each party to explore more fully the facts and issues of each side The caucus offers participants the opportunity to vent anger or frustrations outside the presence of the opposing side The mediator usually will continue to caucus alternatively with each party, carrying settlement proposals back and forth until an agreement is reached The agreement is then reduced to writing, and signed by the parties

This method has some advantages Firstly, resolving through mediation is private and confidential The mediator and parties must maintain, to the full extent required by law, the confidentiality of the information disclosed during mediation Secondly, both facts and feelings are considered with the help of an impartial mediator, together with the control of the parties over the outcome of their own problem Thirdly, solving dispute through mediation is voluntary, and may be terminated at any time by a party

or the mediator In the absence of agreement, the parties retain their right to take the dispute before a judge or jury Therefore, disputes can be settled promptly, therefore, promotes better relationships through cooperative problem-solving and improved communication Finally, mediation costs may be significantly less than taking a case to court, especially if mediation is chosen prior to filing a lawsuit

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However, mediation might result in the following outcomes: the parties might agree on the terms of a decision in the proceedings that would be acceptable to the parties — if a decision requires the Court to make orders, the matter would need to be listed before the Court for it to consider and, if it considers the terms appropriate, make orders in accordance with the decision agreed to by the parties; or the parties might not agree in which case the matter is referred back to the Court for listing for hearing before a different commissioner or a judge With mediation and conciliation, the neutral party is there to help, but has no authority to impose a solution

1.2.2.3 Commercial arbitration

Arbitration, in particular, has long been relied upon by commercial participants worldwide as an indispensable procedure for resolving their cross-border conflicts.4 Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed5, or legislation has decreed, will be final and binding Arbitration can be either voluntary or mandatory (although mandatory arbitration can only come from a statute or from a contract that is voluntarily entered into, where the parties agree to hold all existing or future disputes

to arbitration, without necessarily knowing, specifically, what disputes will ever occur) and can be either binding or non-binding Non-binding arbitration is similar to mediation in that a decision cannot be imposed on the parties However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground

on which to compromise, the (non-binding) arbitrator remains totally removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable

Parties often seek to resolve their disputes through arbitration because of a number of perceived potential advantages over judicial proceedings Firstly, when the subject matter of the dispute is highly technical, arbitrators with an appropriate degree

of expertise can be appointed Secondly, resolving disputes by arbitration is faster and

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more flexible for business than litigation in court Thirdly, its proceedings and award are generally non-public, and can be made confidential Finally, in most legal systems there are very limited avenues for appeal of an arbitral award, which is sometimes an advantage because it limits the duration of the dispute and any associated liability In reality, because of the provisions of the New York Convention 1958, arbitral awards are generally easier to enforce in other nations than court judgments

Although it is used popularly in many countries, resolving a dispute arising in business context still owns some unavoidable disadvantages Firstly, the disadvantages are arisen due to the prompt process of this method There are very limited avenues for appeal, which means that an erroneous decision cannot be easily overturned, leading to some unsuitably right award can affect to the situation of business Secondly, in current situation of Vietnam, the fee for using this method is too high, the medium and small business cannot afford Thirdly, if both parties cannot agree to use arbitration to resolve dispute in contract, arbitration will not have the authority to solve in case of arising dispute, even of the parties‘ will Furthermore, the speed and effectiveness of the procedures would greatly depend on the experience and capabilities of the arbitrator or panel of arbitrators Thus, which party has greater access to arbitrators with the requisite experience may be outcome determinative "In this respect, the risks involved could be comparable to litigation - namely, a high degree of uncertainty and likelihood of considerable costs Finally, unlike court judgments, arbitral awards themselves are not directly enforceable A party seeking to enforce an arbitral award must resort to judicial remedies, called an action to "confirm" an award.6

1.2.2.4 Litigation in court

It is one of the traditional ways to resolve conflict The court will judge and bring the mandatory award The court can also executive the foreign award This method have some advantages, includes Firstly, the court is an authority representing for government to resolve dispute, therefore, its award is ensured the enforcement by the power of government These characteristics are seen as the most important factor, leading to the preference of this method Secondly, this method can be done in many

6 The time before the Arbitration Ordinance 2003 come into effective, the mandatory award of Arbitration is not so high because arbitration is not a representing authority for government It is up to the will and voluntariness of the parties to carry out this decision.

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rank of court ensuring the decision to be more precise, fairer, impartial and legal Besides, the authority of the court is extended more to many fields So, it is often of preference than other methods

In spite of such advantages above, this method of solving disputes still have many disadvantages Because the conflict is relating to the business, therefore, the procedure of resolving the dispute must be fast and flexible, so, the rigid characteristic

of the process is not suitable with the business action of the parties This may be the biggest disadvantage of this method One more of the disadvantage in this method is of the principle ―judging open to the public‖ The disputing parties often dislike to be known about the inside problem of their business Therefore, this method cannot ensure the private nature of the dispute Due to the procedure of the court, resolving dispute in this method often takes too time and lot of money of the parties, sometimes makes parties lose many business opportunities This method often limits the ability of the parties to the process of resolving disputes, sometimes, the final award of the Court cannot express the aspiration of the parties

1.3 Legislation system governing Letter of credit transaction

1.3.1 International law

In the process of current global integration, it is indispensable to apply the treaties or the international practices, especially, in such fields relating directly to the action of trading goods internationally Although there is no specific law on Letter of credit transaction, there is a principle in Vietnamese legal system, that is, it is preferred

to apply the international common practiced (specifically UCP), if agreed by both parties and not be contrary to the basic principle of Vietnamese legislation

International treaties

In L/C method of payment, B/E are often required, therefore, this document brings the close and full stipulations from endorsement, recourse, guarantee, time of payment, payment and the amendment…

articles and 7 chapters on the scope of application, transferring, right and obligation, exemption, presentation, refusal and recourse

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provides a comprehensive set of procedural rules upon which parties may agree for the conduct of arbitral proceedings arising out of their commercial relationship and are widely used in ad hoc arbitrations as well as administered arbitrations The Rules cover all aspects of the arbitral process, providing a model arbitration clause, setting out procedural rules regarding the appointment of arbitrators and the conduct of arbitral proceedings and establishing rules in relation to the form, effect and interpretation of the award It is used popularly by many arbitration centers as a model for their own

arbitration proceedings rule

through in 1985 to make good the big differences in domestic law on arbitration, confirm the necessities of improving and harmonizing the domestic law with the international law in the field of arbitration

 International practices

UCP

Currently, the most popular international practices regulating L/C transaction is The Uniform Customs and Practice for L/Cs (UCP) It is a set of rules on the issuance and use of letters of credit which was drafted and published by International Chamber

of Commerce‘s (ICC) Commission.8 This document regulates the rights, responsibilities of parties concerned in L/C transaction on condition that adherence to UCP is stipulated in L/C These versions of UCP are often unified to use as a legal document governing the Letter of Credit transaction in many countries with no specific

8 Historically, the commercial parties, particularly banks, have developed the techniques and methods for handling letters of credit in international trade finance This practice has been standardized by the ICC by publishing the UCP in 1933 and subsequently updating it throughout the years The ICC has developed and moulded the UCP by regular revisions, the current version being the UCP600 The result is the most successful international attempt at unifying rules ever, as the UCP has substantially universal effect The latest revision was approved by the Banking Commission of the ICC at its meeting in Paris on 25 October 2006 This latest version

is called the UCP600

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The new rules of the UCP 600 signal a move towards more certainty in letter of credit law It clarifies the positions of each of the parties involved in the use of credits; that is the bank, the applicant and the beneficiary This is achieved through the new articles 2 and 3, the disappearance of revocable credits and the clarification of both the standard of examination of the documents and the documents that can be accepted as original

There are some issues that are not dealt with by the UCP 600, however, which continue to cause controversy and confusion in the law of documentary credits One such issue is the ambit of the fraud exception to the autonomy principle, which is not even mentioned in the UCP Instead each jurisdiction takes a different approach to fraud resulting in uncertainty in this area of the law

Another issue is the conflict of laws The UCP 600 (and its predecessors) does not contain any governing law or jurisdiction clauses This is because the credit law

found in the UCP is based upon lex mercatoria However, although there are some internationally accepted banking standards and practice there is no separate body of lex

mercatoria Thus although the majority of credit problems can be dealt with by

reference to the articles there will inevitably remain some issues that will fall outside the UCP and be governed by domestic legal systems such as the fraud exception, and the controversial illegality and nullity exceptions In failing to regulate the governing law and jurisdiction that is to govern documentary credit disputes, the UCP ignores the situation whereby plaintiffs will bring their claims in a forum most likely to grant a favourable remedy rather than the forum with the closest relationship to the credit transaction This decreases certainty in commercial relationships and allows a plaintiff

to dictate where a dispute will be resolved to the detriment of the defendant All in all the UCP 600 makes positive strides towards greater certainty in letter of credit law, despite the fact that some key opportunities were missed It is hoped that these issues will come to the fore in future revisions

ISBP

Because the UCP rules are general in nature, it was necessary to define in greater detail the term ―international standard banking practice‖, first found in UCP 500 sub-article 13 (a), the previous version of the UCP The International Standard Banking Practice for the Examination of Documents under L/Cs (ISBP), ICC Publication 645 is

credits that are subject to UCP 600 - ICC‘s most recent rulebook on documentary

credits used for letter of credit transactions worldwide This new edition of ISBP does not amend UCP 600 but moreover demonstrates how its principles and content should

be integrated into day-to-day practice It provides readers with detailed practices to be considered and applied when working with different trade documents including invoices, transport documents, insurance documents, and certificates of origin It also provides coverage of documents which are not specifically mentioned in UCP The

new point of the 2013 edition of ISBP is that it covers, among others, practices

identified from Opinions approved by ICC national committees since 2007, and also features the following documents which were not previously covered:

 Packing list

 Weight list

 Beneficiary certificate

 Non-negotiable sea waybill

 Analysis, Inspection, Health, Phytosanitary, Quantity and Quality certificates

eUCP

In response to the growing need for the banks industries to utilise electronic commerce, ICC authorised the Task Force to formulate standards for electronic presentation of documents ICC Banking Commission established a Working Group consisting of experts in the UCP, electronic trade, legal issues and related industries, such as transport, to prepare the appropriate rules for electronic and mixed presentations Supplement to the Uniform Customs and Practice for Documentary Credits for Electronic Presentation or "eUCP" is the result of the efforts of this committee

Similar to the legal status of the UCP, the eUCP is not a statutory code but is a codification of rules of practice, and therefore should be applied in the situation where parties have an intention to be governed Although the eUCP is described as a ―bridge

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between the UCP and the processing of the electronic equivalent of paper-based credits,‖ the eUCP has certain differences from the application of the UCP First, the eUCP allows the parties to choose whether the eUCP combined with the UCP applies

or whether the UCP alone applies If the parties choose to present the paper documents and incorporate the UCP expressly, then the UCP alone acts as the governing rules Alternatively, the parties are entitled to present the electronic record and agree to be governed by the eUCP, combined with the UCP rules Secondly, the eUCP applies when the credit indicates that it is subject to the eUCP According to Article e1 (b) of the eUCP, "the eUCP shall apply as a supplement to the UCP where the credit indicates that it is subject to the eUCP" This regulation does not require express incorporation as does that of Article 1 of the UCP 600 So the eUCP applies where it can be determined from the communication taken in the context of the practice that the credit is intended by the issuer to be subject to the eUCP

URR

The Credit is subject not only to UCP, but also to the Uniform Rules for

Bank-to-Bank Reimbursements under Documentary Credits (URR) of ICC, Paris It is a set of

Rules to document worldwide practice and standardize the processing of bank-to-bank

reimbursements Used in conjunction with UCP, these version of URR sets forth a

series of concepts to facilitate the reimbursement process

 Clarifies the issues surrounding expiry of reimbursements

 Establishes a reasonable time, not to exceed three banking days, for reimbursing bank to process claims

 States clearly the conditions under which reimbursement claims do and do not have to be authenticated

 Specifies the items that a claiming bank must include in its claim if required by the credit and/or the reimbursement undertaking

Its sub- Article 13(b) of UCP 600 on bank-to-bank reimbursement arrangement prescribes (if the credit is not subject to the ICC Rules for Bank-to-Bank Reimbursements (i e URR 725)) that:

• the issuing bank must issue a reimbursement authorization;

2008 These rules describe the tasks and duties of the reimbursing, claiming and issuing banks Furthermore, they define exactly, among others, what is to be included

in a reimbursing authorization and what a reimbursement undertaking actually is This ensures that all the banks involved have clear guidelines There are aspects of a reimbursement process that are not suitably covered by UCP 600 article 13 This is a deliberate position to encourage usage of rules that are specifically designed for the product to expand the content of UCP 600 article 13 to cover more areas of reimbursement processes would serve no useful purpose

In accordance with the current regulations, if the parties arrange to apply UCP, ISBP or the other documents published by International Chamber of Commerce‘s (ICC) Commission, such regulations of ICC will be applied This is a sign showing the Vietnam‘s recognization of the application of such common practices issued by ICC in the field of L/C transaction in Viet Nam The acknowledgement of such contents in the legal documents shows the evidence and explicitness of Vietnamese legislation, which helps to improve the confidence of the foreign partners with Vietnam, thereby promotes the payment activities in general and the L/C payment between the Vietnamese credit institutions and the foreign partners

1.3.2 National law

a) Importance of national law to L/C

The transaction in Letter of credit is seen as not only an international payment instrument but also an internal instrument when concerning with the relation of the issuing bank - the buyer and the advising bank – the seller Moreover, this Letter of

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Credit method has a close relationship with the other economic professional knowledge, such as line shipping, insurance… which requires the application of many other rules, practices and the particular professional skill to settle the dispute At that time, the law application is conducted up on the principle of law conflict stipulated differently in each law system Therefore, it can be said that the state legislation plays

an important part in governing the transaction by Letter of Credit

b) Stipulation of Vietnamese law on L/C

As a payment service which is often used in international commerce, letter of credit at first is under regulation of managing foreign exchange, activity of commercial bank and international payment Beside other law in relating field, for instance, Law on Negotiable instrument 2005; Law on the State Bank 2010 and Law No 47/2010/QH12 on credit institutions, there has been only four legal documents directly regulating Letter of credit so far However, they just mention so basic contents of this method

Firstly, Decree No.64/2001/NĐ-CP dated September 20, 2001 on the payment

activities through the credit institution (hereinafter Decree 64/2001/NĐ-CP Item 2

Article 3 of this Decree “Payment service-providing organizations are the State Bank

of Vietnam (hereinafter called the State Bank for short), banks and other organizations permitted to provide payment services.” Accordingly, ―bank‖ comprise of State

Commercial bank, commercial banks, development banks, investment banks, policy banks, co-operative banks and foreign banks founded in Vietnam The other organzations are State Treasury, People‘s Credit Fund and postal saving service Thus, payment – service supplying organizations are quite huge which make condition for the development of payment service activities in Vietnam As we can see, this decree only focus to stipulate the contents concerningthe issues: (1) opening the account, executive cycle, organizing and joining the payment system of the credit constitution (2) opening, using the payment services of the user this services However, the particularity of Letter of credit is not dealt with in this document

Secondly, Decision 226/2002/QD–NHNN dated June 23, 2002 (hereinafter called Rule 226) In order to fill the gap of law in transaction by letter of credit, Article 19 of makes road for UCP application

Article 19 Forms of international payment

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1 Payment by letter of credit: The opening, issuance and amendment of, and notifications, certifications, inspections of vouchers, payment, rights and obligations of parties, and so forth, with respect to payment of letters of credit shall be implemented

in accordance with the general rules issued by the International Chamber of Commerce (ICC) which the parties have agreed to apply and in accordance with the current laws of Vietnam

Rule on the payment activities through the organization supplying the payment service, issued with Decision 226/2002/QD–NHNN dated June 23, 2002 (hereinafter called Rule 226) not only stipulates about the condition and procedure to to organize and join the payment system,valso gives detail guidance about using and conducting the payment service by payment order, document; and the rights and obligations of each participant…

Article 16: Payment by letter of credit

1 A letter of credit means a conditional written undertaking provided by a bank

at the request of an user of payment services (a person applying for a letter of credit), pursuant to which the bank shall fulfil the request of the user of payment services (the person who applied for the letter of credit) to:

- Pay itself, or authorize another bank to pay, pursuant to the order of the beneficiary immediately upon receipt of a set of documents which are presented and comply with the conditions in the letter of credit; or

- Agree to pay itself, or authorize another bank to pay, pursuant to the order of the beneficiary on a fixed date in the future when it receives a set of documents which are presented and comply with the conditions in the letter of credit

The definition of Letter of credit in this article is conformed totally to the spirit of UCP However, this definition only deals 2 payment methods by Letter of Credit, that

is (1) at sight payment, or (2) deferred payment at a particular time in future There is one method which is not still dealt with, that is acceptance the Bill of Exchange (B/E) drawn by the Beneficiary if the credit is available by B/E

Thirdly, procedures of opening and paying letter of credit in each process are stipulated mostly in Decision 1092/2002/QD-NHNN dated October 8th 2002 Accordingly, all parties concerned must conform the process as stipulated In actuality, these stipulations in Decision 1092/2002/QD-NHNN only regualte the process of ―to

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form, circulate, examine documents and keep business account‖ However, such stipulations do not reflex the characteristics of process in L/C, rights and responsibilities of bank in paying transaction or relation between bank and parties Forthly, Ordinance 28/2005 issued by Standing Committee of National Assembly

on foreign exchange stipulates foreign exchange activities in Vietnam Decree No 160/2006 by the Government on December 28th 2006, details the implementation of a number of articles of the Ordinance on Foreign Exchange and the Decree No.12/2006 issued by the Government dated January 23rd 2006 In the process of conducting the Letter of Credit, generally, if the beneficiary presents the conformed documents with the L/C, bank will have the liability to take the action of payment for them However,

in most cases, beneficiaries often are foreigners, therefore, the payment through transferring must abide all regulation of Ordinance on Foreign exchange and the other following enactment guiding for this Ordinance

Although there were some lacking, such documents can be seen as the precious material for building the Vietnamese separate stipulation on Letter of credit

1.4 Study on Chinese, Japan and USA legislation

 Chinese law:

In 2006 China took a big step to development of the law on letters of credit enacting fundamental regulations about its working mechanism and on fraudulent demand when issued the ―Provisions of the Supreme People‘s Court of the People‘s Republic of China on some Issues concerning the Trial of Cases of Disputes over Letter of Credit.‖

Article 7:

“ An issuer shall have the right and obligation to check the documents independently

It shall have the right to decide, on its own initiative, whether or not the documents conform to the clauses of the letter of credit…if the issuing bank finds that there is a discrepancy under the letter of credit, it may, on its own initiative, decide whether or not to contact the applicant to accept the discrepancy…the applicant decision…will not have any influence on the issuing bank’s final decision…”

Like some provision of UCP, some of new Chinese Rule have been questioned and discussed due to imabiguity Firstly, it is not quite clear and understandable why an issuer needs the applicant‘s permission, if it is not compulsory for it,

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even if the applicant on the ground of the contract of agency has a ruling position against the issuer This ambiguous provision is likely to make impossible that independent nature of a letter of credit will remain injured Secondly, if an issuer rejects the payment against the applicant‘s will with special regard to autonomy of letters of credit and its action might cause damages and losses, the issuer must take the responsibility for it and must compensate all concerned parties including the immaterial losses (injury of goodwill) as well The author personally takes the points of those experts, who are against this paragraph, which must have been deleted from the new UCP 600

On the other side the ―Rules‖ correctly state that in case of any discrepancy a beneficiary will never get the right to enforce the payment even if the applicant would give its permission to an issuer, or would accept the beneficiary‘s performance and will be ready to pay for it The contracting parties have the opportunity to settle this problem outside of the framework of letters

of credit If an appeal for preventing the issuer from the payment has been submitted

to a court, it has only 48 hours to decide to issue a ―stop-payment‖ injunction

or not This very short time of decisional procedure is based on the requirement

of ―evidential material‖ presented by the appellant In contrary to some European countries an injunction is obligatory to all involved parties and must

be executed immediately Against the preliminary injunction an appeal may be filed, but the final decision is to be made within 10 days ―from the date of receipt of reconsideration application.‖

If UCP 500 and UCP 600 don‘t dealt with the issue of solving the rights and obligations of the parties in case of fraudulence9, the article from 8 to 15 of this Rule is built to make goods for this blank in UCP This Rule brings the definition about fraudulence concerning L/C, draw out the main points in applying the remedy actions

9 https://www.bancsabadell.com/empresa/g3repository/DOC_PDF/EN_DESCARGA_EUCP_EN_EUCP.PDF Due to the differences of economic and legal systems between different jurisdictions, each jurisdiction applies diverse criterion on crime of L/C fraud under criminal law and L/C fraud under civil sanctions

Some jurisdictions even deal with the crime of L/C fraud under civil regulations and ignore the criminal liability

of the fraudsters, which leads to wide gaps in the application of criminal law Some countries impose very mild criminal punishment for L/C fraud; for example, an American criminal received only two-months of imprisonment after defrauding 9 million US dollars by forging a BL in Cuba