Wednesday January 9th, 2008, has started heavily. The day was of a big importance to me. The day I would discuss my dissertation (mémoire) after 3 years of preparing it with all of what I have known of obstacles and sad events such as the death of my father and my uncle's wife.
I started the day, nervous, confused...I went to the cemetry where I read Al Fatiha on my father's grave, then I took a shower and I dressed before my friends and family members gathered in the house.
Arriving to the university, we met with other friends and students before we entered the conference room. The President of the Jury opened the session, introduced me and asked to present my work (in English language - Anglo-American Law):
"Thank you Mister the President.
In the Name of God, the Clement, the Merciful,
Mister the President,
Honorable Members of the Jury,
First at all, please allow me to thank my supervisor Professor ****** (of British nationality), for his kind assistance and guidance given during all the stages of my work.
I am also thankful to both of you, Mister the President, Professor ***** and Professor ******, for accepting to read and to value my dissertation and for giving me this opportunity to defend it and to share with me and my beloved, this important day.
Mr. the President,
Honorable Members of the Jury,
My dissertation is entitled ***********. The choice of this topic was dictated by the International trade circumstances specially that the documentary credit is the most acceptable payment device in international trade due to its secure and prompt character. Thus it is not surprising that the documentary credit has been described by the English Judges as "the life blood of international commerce".
Therefore, before deepening into the main subject, it is better to expound the mechanism of the documentary credit or also commonly known as Letter of Credit.
in fact, merchants are desirous to minimize their risk when entering into commercial relationships. This objective receives even higher awareness when the relationship enters the international field, and involves transportation of goods over frontiers, differences in languages, currency, culture and jurisdiction.
To reconcile the various economic interests of the parties, as well as to protect themselves from the pitfalls of international engagements, merchants developed different methods to finance international trade among them the documentary credit which is a unique financial instrument. It gives safe and prompt acess for the seller (the beneficiary), to the purchase price while protecting the buyer (the applicant), against improper demands.
A typical documentary credit operates in the following way: suppose a seller in the United Kingdom wishes to sell some goods to a buyer in Tunisia. Suppose further that the parties have not previousely entered into any business realtionaship, thus they do not know each other. although both parties are willing to enter into a relationship, they are very concerned about the other party's financial reliability.
Please note that this mechanism works in the same way worldwide and it is defined with the same way in different jurisdictions, either under common law or civil law.
So, the seller wishes to get paid as soon as he has shipped the goods. He is afraid that, afetr shipping the goods, the buyer may refuse to pay the purchase price, or even becomes insolvent. In both cases, the seller may have to engage himslef into lenghty negotiations, or sue the buyer to seek enforcement of payment by the court, which will certainly incur great expenses. Not to mention the costs of shipping back the goods or storing them in the original country of destination until further actions. on the other hand, the buyer is concerned that he may not get the goods in the agreed quality and/or the quantity, thus he is not willing to apy unless he inspects the goods.
In a situation like this, where the buyer and the seller are distant from each other and the transportation of goods is inevitable, it is impossible to have the seller paid upon shipment and at the same time allow teh buyer to pay only upon inspection of the goods. Sometimes, Letter of Credit is seen as a game according to which, each one of the parties is trying to throw away risks on the other party's back. This shifting of risk creates a dilemma.
By agreeing to a Letter of Credit, the parties invite a third, trustworthy party, usually a bank, into their relationship. Upon teh buyer's request, the bank will open a Letter of Credit in favour of the seller, agreeing to pay the contract price or to pay, accept or negotiate a bill of exchange drawn for the price, provided that the specified transport documents (usually a bill of lading, an insurances policy and an invoice) are duly tendered and any other terms and conditions of the credit are complied with.
However, if the bank fails to comply with the instructions and pay against documents which do not strictly conform to the Letter of Credit terms, on the contrary to the doctrine of strict compliance, it entails its responsibility and it may be liable to the buyer for damages, and may not be reimbursed.
In order to avoid their responsibilities, banks must notify the applicant/buyer, of any discrepancy and must reject any discrepant document in accordance with the doctrine of strict compliance and to preserve the stability of the mechanism
As a matter of fact, the essence of the documentary credit is stipulated in law, customs and practices (article 5 of the UCP 600, which stipulates: "banks deal with documents not with goods, services or performances to which the documents may relate." Therefore, all of the parties must know that if the documents conform, the bank will pay and that if they do not conform, it will dishonor. This principle of strict compliance was implemented by the msot leading common law authority on the strict compliance rule, the English case of Equitable Trust Co. of New York v. Dawson Partners Ltd., where Lord Sumner expressed his famous sentence of "there is no room for documents which are almost the same, or which will do just as well".
The question that should be addressed is whether a literal interpretation of the credit terms should be adopted or less rigid approach should be adopted by banks when handling the documentary transactions.
Mr. the President,
Honorable Members of the Jury,
Rome was not build in one day. In fact, during the elaboration of this dissertation, I have faced many difficulties of different kinds. Some of them were of academic order. In fact, Westlaw, which is our main source and window over the Anglo-American Law, has been interrupted twice during the course of my research. I have also faced the scarcity of the available materials and information concerning the debate over the doctrine of strict compliance especially here in Tunisia. Some of the documents were not updated. I was also obliged to review my research on the middle of the road because of the appearance of the new revision of the UCP, UCP 600 which came into force on July 1st, 2007, however my preliminary and first research and work were based on the UCP 500. Herein, I would like to thank again my supervisor Professor ****** who provided me with a copy of the new UCP 600 in due time before the official publication.
Other difficulties were of legal order. In fact, in some area, laws are sometimes silent or ambiguous, and cases linked to my subject are hard to find. But these problems were overcame by the assitance of my supervisor Professor *****, my professors in our university and especially Professor ****** and Professor *******.
I had also the opportunity to get acces to the libraries of some universities in the United States of America, especially University of North Carolina at Charlotte.
I have also faced problems of personal order. In fact, the year 2006 was an annus horribils to me. Loosing a father or watching the suffering of my friends in Lebanon and Gaza, were not events easy to live with. I am not saying this in order to seek compassion or sympathy, I am only searching the best way to make tribute to these persons, right here, right now.
Mr. the President,
Honorable Members of the Jury,
Driven by the interest of the topic from one hand and by the difficulties and the available materials from the other hand, I have judged it necessary to point out how there is still an attachment to apply the strict compliance rule literally by the banks and courts but with slight tolerances where no strict conformity could be required. in fact, recent estimates place letter of credit transactions in excess of one trillion US Dollars per annum, 50 to 70% of them have been found with discrepancies. From this side, the study of the strict compliance rule draws its importance.
Under the strict compliance rule, if the exact documents called for the documentary credit are tendered by the exporter, the paying bank will pay against presentation of documents. If the paying bank does not comply with the terms of the credit, the importer may not reimburse that money to the bank.
Needless to say, that complexity in documents and discrepancies therein tendered by the beneficiary cause delay resulting in payments being put off or refused and sometimes it may end up in a loss of future trade.
The strict compliance doctrine has caused difficulties and delays in handling documetary transactions by the bankers due to discrepancy problems in documents presented by the beneficiaries. Moreover, in interpreting the credits terms, the courts seem to have adopted a harsh approach towards this problem. The study however, shows that beneficiaries' documents are rejected despite the fact that discrepancies are of peripheral nature. It further shows that the bankers make arrangements and negotiate with the applicants in documentary credits to waive the discrepancies in order to ensure that commercial expectations of the parties succeed.
The problem is crucial. It is like the endless question of which comes first: the chiken or the egg? If a rigid approach is adopted, the accuracy, clarity and certainty of the documentary credit system will be lost. However, if a mitigated approach is adopted, this may render the documentary credit a worthless device. From these reasons, it is better for the bank to follow a case by case examination of the documents and the parties are invited not to list a huge number of documents. this will allow the bank to adopt a rigid approach when it necessary and to adopt a mitigated approach when tolerances are allowed.
I have deduced some results from the study which could be form a kind of suggestions to Tunisian professionals and policy makers concerning the meaning of strict compliance. Although I was sorry that the debate over the strict compliance doctrine was not developed in the civil alw countries. Thus, it would be better to take a clear position of the doctrine and it would be better if questions of fraud and remedy would be taken into consideration when updating the articles of the Tunisian Commercial Code dealing with the Documentary Credit.
Mr. the President,
Honorable Memebers of the Jury,
The work which is between your hands is a fruit of a two-year effort. It is my first academic draft. Therefore, please accept my aplogize for mistakes you have encountered, and I hereby engaged to correct them taking into consideration your valuable comments and observations.
Thank you again for accepting to attend this discussion and I would like to thank again my supervisor Professor ***** and the lovely audience.
Thank you."
To the readers: I wish success to each one of you and I hope that the squeleton of this speech may help some of you. The only advice I address to you: NEVER GIVE UP.
I started the day, nervous, confused...I went to the cemetry where I read Al Fatiha on my father's grave, then I took a shower and I dressed before my friends and family members gathered in the house.
Arriving to the university, we met with other friends and students before we entered the conference room. The President of the Jury opened the session, introduced me and asked to present my work (in English language - Anglo-American Law):
"Thank you Mister the President.
In the Name of God, the Clement, the Merciful,
Mister the President,
Honorable Members of the Jury,
First at all, please allow me to thank my supervisor Professor ****** (of British nationality), for his kind assistance and guidance given during all the stages of my work.
I am also thankful to both of you, Mister the President, Professor ***** and Professor ******, for accepting to read and to value my dissertation and for giving me this opportunity to defend it and to share with me and my beloved, this important day.
Mr. the President,
Honorable Members of the Jury,
My dissertation is entitled ***********. The choice of this topic was dictated by the International trade circumstances specially that the documentary credit is the most acceptable payment device in international trade due to its secure and prompt character. Thus it is not surprising that the documentary credit has been described by the English Judges as "the life blood of international commerce".
Therefore, before deepening into the main subject, it is better to expound the mechanism of the documentary credit or also commonly known as Letter of Credit.
in fact, merchants are desirous to minimize their risk when entering into commercial relationships. This objective receives even higher awareness when the relationship enters the international field, and involves transportation of goods over frontiers, differences in languages, currency, culture and jurisdiction.
To reconcile the various economic interests of the parties, as well as to protect themselves from the pitfalls of international engagements, merchants developed different methods to finance international trade among them the documentary credit which is a unique financial instrument. It gives safe and prompt acess for the seller (the beneficiary), to the purchase price while protecting the buyer (the applicant), against improper demands.
A typical documentary credit operates in the following way: suppose a seller in the United Kingdom wishes to sell some goods to a buyer in Tunisia. Suppose further that the parties have not previousely entered into any business realtionaship, thus they do not know each other. although both parties are willing to enter into a relationship, they are very concerned about the other party's financial reliability.
Please note that this mechanism works in the same way worldwide and it is defined with the same way in different jurisdictions, either under common law or civil law.
So, the seller wishes to get paid as soon as he has shipped the goods. He is afraid that, afetr shipping the goods, the buyer may refuse to pay the purchase price, or even becomes insolvent. In both cases, the seller may have to engage himslef into lenghty negotiations, or sue the buyer to seek enforcement of payment by the court, which will certainly incur great expenses. Not to mention the costs of shipping back the goods or storing them in the original country of destination until further actions. on the other hand, the buyer is concerned that he may not get the goods in the agreed quality and/or the quantity, thus he is not willing to apy unless he inspects the goods.
In a situation like this, where the buyer and the seller are distant from each other and the transportation of goods is inevitable, it is impossible to have the seller paid upon shipment and at the same time allow teh buyer to pay only upon inspection of the goods. Sometimes, Letter of Credit is seen as a game according to which, each one of the parties is trying to throw away risks on the other party's back. This shifting of risk creates a dilemma.
By agreeing to a Letter of Credit, the parties invite a third, trustworthy party, usually a bank, into their relationship. Upon teh buyer's request, the bank will open a Letter of Credit in favour of the seller, agreeing to pay the contract price or to pay, accept or negotiate a bill of exchange drawn for the price, provided that the specified transport documents (usually a bill of lading, an insurances policy and an invoice) are duly tendered and any other terms and conditions of the credit are complied with.
However, if the bank fails to comply with the instructions and pay against documents which do not strictly conform to the Letter of Credit terms, on the contrary to the doctrine of strict compliance, it entails its responsibility and it may be liable to the buyer for damages, and may not be reimbursed.
In order to avoid their responsibilities, banks must notify the applicant/buyer, of any discrepancy and must reject any discrepant document in accordance with the doctrine of strict compliance and to preserve the stability of the mechanism
As a matter of fact, the essence of the documentary credit is stipulated in law, customs and practices (article 5 of the UCP 600, which stipulates: "banks deal with documents not with goods, services or performances to which the documents may relate." Therefore, all of the parties must know that if the documents conform, the bank will pay and that if they do not conform, it will dishonor. This principle of strict compliance was implemented by the msot leading common law authority on the strict compliance rule, the English case of Equitable Trust Co. of New York v. Dawson Partners Ltd., where Lord Sumner expressed his famous sentence of "there is no room for documents which are almost the same, or which will do just as well".
The question that should be addressed is whether a literal interpretation of the credit terms should be adopted or less rigid approach should be adopted by banks when handling the documentary transactions.
Mr. the President,
Honorable Members of the Jury,
Rome was not build in one day. In fact, during the elaboration of this dissertation, I have faced many difficulties of different kinds. Some of them were of academic order. In fact, Westlaw, which is our main source and window over the Anglo-American Law, has been interrupted twice during the course of my research. I have also faced the scarcity of the available materials and information concerning the debate over the doctrine of strict compliance especially here in Tunisia. Some of the documents were not updated. I was also obliged to review my research on the middle of the road because of the appearance of the new revision of the UCP, UCP 600 which came into force on July 1st, 2007, however my preliminary and first research and work were based on the UCP 500. Herein, I would like to thank again my supervisor Professor ****** who provided me with a copy of the new UCP 600 in due time before the official publication.
Other difficulties were of legal order. In fact, in some area, laws are sometimes silent or ambiguous, and cases linked to my subject are hard to find. But these problems were overcame by the assitance of my supervisor Professor *****, my professors in our university and especially Professor ****** and Professor *******.
I had also the opportunity to get acces to the libraries of some universities in the United States of America, especially University of North Carolina at Charlotte.
I have also faced problems of personal order. In fact, the year 2006 was an annus horribils to me. Loosing a father or watching the suffering of my friends in Lebanon and Gaza, were not events easy to live with. I am not saying this in order to seek compassion or sympathy, I am only searching the best way to make tribute to these persons, right here, right now.
Mr. the President,
Honorable Members of the Jury,
Driven by the interest of the topic from one hand and by the difficulties and the available materials from the other hand, I have judged it necessary to point out how there is still an attachment to apply the strict compliance rule literally by the banks and courts but with slight tolerances where no strict conformity could be required. in fact, recent estimates place letter of credit transactions in excess of one trillion US Dollars per annum, 50 to 70% of them have been found with discrepancies. From this side, the study of the strict compliance rule draws its importance.
Under the strict compliance rule, if the exact documents called for the documentary credit are tendered by the exporter, the paying bank will pay against presentation of documents. If the paying bank does not comply with the terms of the credit, the importer may not reimburse that money to the bank.
Needless to say, that complexity in documents and discrepancies therein tendered by the beneficiary cause delay resulting in payments being put off or refused and sometimes it may end up in a loss of future trade.
The strict compliance doctrine has caused difficulties and delays in handling documetary transactions by the bankers due to discrepancy problems in documents presented by the beneficiaries. Moreover, in interpreting the credits terms, the courts seem to have adopted a harsh approach towards this problem. The study however, shows that beneficiaries' documents are rejected despite the fact that discrepancies are of peripheral nature. It further shows that the bankers make arrangements and negotiate with the applicants in documentary credits to waive the discrepancies in order to ensure that commercial expectations of the parties succeed.
The problem is crucial. It is like the endless question of which comes first: the chiken or the egg? If a rigid approach is adopted, the accuracy, clarity and certainty of the documentary credit system will be lost. However, if a mitigated approach is adopted, this may render the documentary credit a worthless device. From these reasons, it is better for the bank to follow a case by case examination of the documents and the parties are invited not to list a huge number of documents. this will allow the bank to adopt a rigid approach when it necessary and to adopt a mitigated approach when tolerances are allowed.
I have deduced some results from the study which could be form a kind of suggestions to Tunisian professionals and policy makers concerning the meaning of strict compliance. Although I was sorry that the debate over the strict compliance doctrine was not developed in the civil alw countries. Thus, it would be better to take a clear position of the doctrine and it would be better if questions of fraud and remedy would be taken into consideration when updating the articles of the Tunisian Commercial Code dealing with the Documentary Credit.
Mr. the President,
Honorable Memebers of the Jury,
The work which is between your hands is a fruit of a two-year effort. It is my first academic draft. Therefore, please accept my aplogize for mistakes you have encountered, and I hereby engaged to correct them taking into consideration your valuable comments and observations.
Thank you again for accepting to attend this discussion and I would like to thank again my supervisor Professor ***** and the lovely audience.
Thank you."
To the readers: I wish success to each one of you and I hope that the squeleton of this speech may help some of you. The only advice I address to you: NEVER GIVE UP.
