THE INTERPRETATION OF THE PRINCIPLE OF STRICT COMPLIANCE IN LETTERS OF CREDIT IN INTERNATIONAL COMMERCIAL LAW

Letter of Credit (L/C) is a very popular payment method in international trade. The issuing bank has the obligation to make payment if the document stipulated in a Letter of Credit are presented. Under the strict compliance principle, any discrepancy in the documents may be the reason for refusing payment. There are two different approaches to the interpretation of the principle of strict compliance: literal compliance and substantial compliance. In literal compliance, a slightest inaccuracy may be the reason for refusing payment, which is not the case in substantive interpretation. The author provides an overview of these two approaches, with specific reference to relevant case law and relevant provisions of the UCP Rules and ISBP Rules governing this international trade matter. These international rules and diverse case law offer opportunities for a more flexible and balanced approach to the interpretation of strict compliance.