THE RESOLUTION FOR LC DISPUTES IN VIET NAM (luận văn thạc sỹ luật)

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
Student ID
Class
Supervisor

Do Thi Mai Hoang Ha
0955050051
CLC34
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
CONCLUSION
BIBLIOGRAPHY

1

INTRODUCTION
1. The necessity of research
In term of theory:
The method of L/C is used more and more popularly in international payment.
One of effective tools to improve and ensure the efficiency of this method is to build
and perfect the system of law regulating L/C. Studying Vietnamese system of law on
the basis of international law has the huge meaning on theory which supplies the
scientific basis for learning about international law and domestic law – the
combination of both system of law regulating this international payment method.
-

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
1


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

2


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
3


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.
4


Chapter 2:The

reality of

resolving

dispute arising out of

L/C

and

recommendations for improvement
In chapter 2, through studying some cases concerning the transaction of L/C,
author goes to analyze and comment the efficiency of Vietnamese stipulation in reality.
From such weak points, author makes some recommendation for amending and

supplementing Vietnamese law with a view to make it synchronize with the
international rules in this field and suitable with the reality of this transaction in
Vietnam.

5


CHAPTER 1: OVERVIEW OF RESOLVING DISPUTES IN L/C
1.1 Letter of credit (L/C)
1.1.1 Definition
L/C Service is a method of payment by means of which one can cover the
purchase of good and services. In this type of service, the bank acts on behalf of the
purchaser, guaranteeing the seller the payment of a sum of money in an established
period in the commercial operation, against the reception of shipping or service
documents, which comply with the terms and conditions established by the buyer as in
letter of credit1. In this method, there are 4 main parties:
-

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.
2
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.

6


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.

7


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
8


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
of payment:
By issuing the letter of credit the bank enters into a relationship with the
beneficiary the ground of which is a definite undertaking of the bank to effect payment
on presentation of documents strictly complying with the terms and conditions of the
credit3.
By confirming a letter of credit a legal relationship is formed between the
confirming bank and the beneficiary. The confirming bank commits itself that upon
presentation of documents strictly complying with the terms of the credit, it will either
pay, accept draft(s) or negotiate. Thus, the confirming bank ―assumes a primary
obligation the same as that of the issuing bank to honor its undertaking under the
credit‖. It is understood that the obligation and liability of the confirming bank is
separate from that of the issuing bank.
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.

9


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.
10


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
11

social administration, not only help for business but also play an important role in
building a society with law.
Besides, solving the disputes must meet some requirements with the benefit of
business. Firstly, it must save time and money as much as possible. It must minimize
expenses to solve the disputes. The parties should choose the resolution method with
the lowest cost, the resolving organ also takes it into consideration to introduce a
suitable stipulation and keep the belief for the business parties. Secondly, it must
protect parties‘ reputation. In the process of resolving, none party should bring out any
information beyond area of settling dispute with an intention of spoiling reputation or
images of the partner in the market, in public or in the settling organ. Thirdly,
resolving disputes must meet the requirement to keep secret of business because it can
influence on the success and position of one party. This requirement must be admired
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
12


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.
1.2.2.2Mediation
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.
13


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.
1.2.2.3Commercial 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
4

The proliferation of options available globally with regard to arbitral institutions and rules demonstrates the
virtual "coming of age" of international arbitration. One of the most distinguishing aspects of arbitration is non
- appeal given its capacity to render a final and binding award. Its multilateral legitimacy has further placed
international arbitration on a footing equal to, and in some cases exceeding, proceedings by national courts.
5
In this method of payment through letter of credit, it is often not stipulated about the arbitration or applied law
and often link to UCP. Therefore, firstly, both parties will concern about UCP and other applicable source of law,
together with the arbitration clause in the contract to choose the suitable method of resolving disputes.

14


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
1.2.2.4Litigation 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.
15


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
Uniform Law for Bill of Exchange – ULB 1930
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….
Law on International Promissory Note and Bill of Exchange comprises of 79
articles and 7 chapters on the scope of application, transferring, right and obligation,
exemption, presentation, refusal and recourse.

16


-

UNCITRAL Arbitration Rules 1967 adopted by UNCITRAL on 28 April 1976

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.
-

UNCITRAL Model Law on International Commercial Arbitration7 was passed

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
law.
7

Note that there is a distinct difference between the UNCITRAL Model Law on International Commercial
Arbitration (1985) and the UNCITRAL Arbitration Rules. On its website, UNCITRAL explains the difference as
follows: "The UNCITRAL Model Law provides a pattern that law-makers in national governments can adopt as
part of their domestic legislation on arbitration. The UNCITRAL Arbitration Rules, on the other hand, are
selected by parties either as part of their contract, or after a dispute arises, to govern the conduct of an arbitration
intended to resolve a dispute or disputes between themselves. Put simply, the Model Law is directed at States,
while the Arbitration Rules are directed at potential (or actual) parties to a dispute.
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.

17


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 subarticle 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
18


a checklist of best practices worldwide for checking documents under the UCP, ICC‘s

universally used rules on letters of credit.
The 2013 edition of International Standard Banking Practice (ISBP) is the most
up-to-date guide for examination of documents under documentary credits. This
revised guide details banking practices to be applied when working with documentary
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
19


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-toBank 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.


URR makes it clear that reimbursements are not irrevocable commitments.

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;
20


•

it must not be stipulated that the claiming bank has to confirm that the credit

terms and conditions are fulfi lled;
•
the issuing bank must be responsible for interest and other expenses if the
reimbursing bank does not pay on fi rst demand;
•
the expenses of the reimbursing bank are debited to the account of the issuing

bank, unless the credit specifi es otherwise.
The content of UCP 600 article 13 covers the bare essentials without tackling
the specifics. An issuing bank may find UCP 600 article 13 as more flexible due to its
lack of content, but for the sake of establishing international practice serious
consideration should be given to adoption of URR 525 now and 725 from October 1,
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
21