The Duty of Banks to Examine the Documents of Letters of Credit in View of Korean Courts

서지정보

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초록

In Korea, the rules of The Uniform Customs and Practice for Documentary Credits including the most recent 2006 Revision (“UCP”) have been the governing rules on the issues of the letters of credit for a long time though they are not statutory rules in Korea. Therefore it is worthy of finding how Korean courts interpret and apply the rules of UCP reviewing their decisions. This article focused on how Korean courts interpret and apply the rules regarding the banks‘ duty to examine the documents in terms of the credit and the scope of this duty. Regarding the standard of care to be exercised by the banks in examining the credit documents, the banks are viewed to have the duty of reasonable care according to the provisions in the UCP600. According to the Korean Supreme Court’s interpretation of the scope of the reasonable care, the care is the opposite concept of the negligence and the lack or disregard of care constitutes negligence. However the reasonable care is not viewed the one as to be determined generally or commonly but is such one as is expected from a reasonable person under the specific circumstances at issue. This article reviewed what factors are to be considered in finding if the banks exercised such reasonable care as are described by the Court.
Recently, the Court characterized the legal nature of the issuing bank’s duty to pay on the letter of credit as a contractual relationship unlike the traditional view that the nature of the credit is a unilateral conduct of the bank. Following this new view, the standard will also be the reasonableness under the circumstances only except that the contract requires special care or higher standard of care either by its own terms or its nature. If a foreign contract law becomes the governing law on the credit according to the choice of law rules in Korea, the standard of care may be decided by the foreign law.
There is another important issue as to the bank’s reasonable care arising out of the so-called “substantial compliance doctrine” which can expand the bank’s duty wider than the traditional “strict compliance doctrine” in examining the documents because the Court adopted the “substantial compliance doctrine” allowing some exceptions to the principle of the strict compliance. Under this doctrine, the banks should take reasonable care to examine the documents to decid if they honor the documents though there is some discrepancy between the documents and the letter of credit. Another related issue is how to view the bank’s scope of reasonable care when the documents are perfectly complying with the letter of credit on its face but there is fraud in the documents. To what extent, is the bank responsible to find the fraud? To find the answers to these issues, this article selected and reviewed several relevant cases and summarized the key facts with which the Court found the banks’ duty of reasonable care to examine the documents in credit transactions.

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