Compliance Standards in the Law of Documentary Letters of Credit

Documentary letter of credit is an important mechanism for payment and finance in international trade with a variety of functions. However, by applying this method, international traders and banks encounter several problems of which one of the most important is compliance of documents with terms and conditions provided in the letter of credit. As stated in introduction of Uniform Customs and Practice for Documentary Credits, more than 70 percent of presentations are rejected by banks at the first time, which can cause significant financial losses, waste of time and vain litigations. As, in documentary credit operation, the realisation of the credit is subject to compliant presentation, clarifying the rule governing documentary compliance has significant importance for desirable performance of letters of credit and ability to predict an identical result through a uniform approach for all parties involved. By assessing common compliance standards, this article is an attempt to achieve the appropriate criterion for determining compliance or discrepancy of tendered documents. As a result, it can be said that the most effective standard to identify the conformity of documents is strict compliance doctrine; Nevertheless, it is important to note that strict compliance test does not necessarily require literal, mirror image approach to the determination of documentary compliance, but trivial and obvious discrepancies that create no risk for parties involved does not render the presented documents non-compliant.