ITL

21/8/2023 (Monday)

Hypothetical

Contract of carriage (CoC)- It is entered into b/w the carrier and the shipper (Person who is
responsible for the shipping the goods).

Carrier when he received goods from shipper, he handover shipper the transport document.

Nomenclature of Transport documents differs depending upon the modes of transportation.

- Air- Transport document referred to as- Airway bill

- Rails- Railway receipt
- Road- Lorry receipt
- Sea- Bill of lading
- Multimodal transport-

there is lot of similarity b/w these transport documents whatever be the mode of transport.

United Nations Convention on the Carriage of Goods by sea, 1978

- adopted in Hamburg
- Aka Hamburg rules
- CoC by sea means a contract whereby the carrier undertakes against payment of
freight to carry goods by sea from one port to another.
- Carrier- It means any person by whom a CoC of goods by sea has been concluded
with a shipper.
- Shipper- It means any person by whom a CoC of goods by sea has been concluded
with the Carrier.
- Consignor- It is a person who has the responsibility of placing or handing over the
goods to the Carrier. This person need not be the seller.
- What is the difference b/w Shipper and Consignor?
- Consignee- It is the person who receives the goods from the carrier at the port of
destination. This person need not be the buyer.
- Difference b/w Consignee and buyer?
22/8/2023 (Tuesday)

Bill of lading

- Ralph Folson- In his book International Business Transaction

“A bill of lading is a document issued by the carrier acknowledging that certain goods
have been received on board the vessel for conveyance to a named place for delivery
to a consignee who may be identified.”

- This definition does not say to whom the carrier issues the bill of lading.
- ‘Certain goods’- Why it doesn’t say good of contract description? What is the
obligation of the carrier to inspect the goods?
Practically not possible for carriers to inspect all goods received from different
shippers.

- Consignee who may be identified- When eventually goods arrive at port of

destination consignee has to be identified. Here he is talking about the identification
of consignee when the bill of lading is issued i.e when the goods are at port of
shipment.
b/c later on buyer may sell the goods before the goods arrive at the port of destination.

- Certain function that the bill of lading performs in international transactions

1. Receipt for goods (handed over to the carrier)
a. Shows that seller has fulfilled his obligation
2. Document of title
a. Bill of lading may operate as document of title. It will depend upon the type of
bill of lading.
3. Contract of carriage
 - Bill of lading also incorporates disclaimer clause by carrier. It is a clause by which
carrier seeks to absolve his liability in case the goods are not conforming.
“Weight, value, contents of goods when shipped unknown...”
- Historically liability of the carrier to safely ship the goods was strict except to act of
god,…., . However, with the development of freedom of contract (party autonomy),
carriers began to take advantage of their superior position (b/c less carrier as
compared to the people involved in the contract).
- Carrier rely on the information provided by the shipper, it is not practically possible
for the carrier to inspect whether the goods are conforming or not?
- How the courts have interpreted the disclaimer clause in the bill of lading?

Case: New Chinese Company v Ocean Steamship Co

- Action
- Complete absolvelity of the carrier by virtue of disclaimer clause.

Case: Compania Naviera Vascangada v Churchil

- Goods in question being timber.

- Timber was exposed to petroleum b/c of which it has deteriorated.
- Carrier has noted this in the separate logbook but failed to mention the same in the
bill of lading.
- Court- carrier is estopped or prevented from seeking recourse to the disclaimer
clause. B/c carrier was aware of the defect in the goods.

23/8/23 (Wednesday)

- Estoppel rule: This rule does not affect the way the carrier has to do an inspection of
goods.
- carrier is required to do a cursory inspection. If in this reasonable inspection, the
defect in goods is apparent, the carrier has to mention the same in the bill of lading.

Case: Silver Company v Ocean steamship company

- The goods were packaged in tins, some tins had deep cuts while some had tiny holes.
- Deep cuts were apparent whereas the tiny cuts were not.
 - Bill of lading contained the usual disclaimer clause.

2. Bill of Lading may Operate as a document of title

- Peter Gilles in his book International business transaction

“A document that confers or proves ownership is a document of title. A document of title

evidences that the person in possession of the document is entitled to receive, hold and
dispose of the goods covered by the document.”

- Originally bill of lading was non-negotiable. Thus, it was made out in favor of a
specific person only.
- Negotiable bill of lading came into practice b/c merchant needed a document which
could be used to raise credit and which can be used to sell the goods while in transit.
- Bill of lading is symbolic possession of goods- thus this can be used as a collatral –
in this way can be used to raise credit.
- Bill of lading will operate as a document of title only when it is negotiable.
- Negotiable bill of lading aka order bill of lading. (Name of consignee- Mr A or
order).

Case: Sanders v Maclean

Court: A cargo at sea while in the hands of a carrier is necessarily incapable of physical
delivery. During this period of voyage the bill of lading is universally recognized as its
(cargo) symbol and endorsement and delivery of bill of lading operates as symbolic
delivery of cargo.

Court also noted certain benefits of a negotiable bill of lading:

a. The person in possession of negotiable bill of lading duly endorsed in his favour
entitled to receive the goods at port of destination.
b. It entitles a person to further transfer ownership in the goods by further endorsing and
delivery.
c. It acts as security for the debt.
Bill of lading as a Contract of Carriage-

- Bill of lading is an outcome of CoC. Contract of Carriage is issued much before the
bill of lading.
- Terms of CoC ought to be reflected in the bill of lading. (If CoC provides certain
dates, certain route, particular type of vessel, the same terms and conditions should
be reflected in bill of lading). There might be some difference in the terms of CoC
and BoL.
- CoC is entered into much before the bill of lading is issued.
- BoL is not really a contract of carriage rather an excellent evidence of CoC. If the
terms in BoL differ from CoC, shipper is not prohibited from establishing the original
terms in CoC.
- Ex. If in BoL the route mentioned is different from the CoC. B/c of that variation in
BoL, if shipper suffers any loss, the terms in CoC will take precedence.

25/8/2023 (Friday)

Bill of lading as a Contract of Carriage-

Case: Crooks v Allan- Court observed – A bill of lading is not a CoC but only an evidence of
the contract. It does not therefor follow that the person who accepts the bill of lading which
the carrier hands in necessarily binds himself to abide by all its stipulation.

Case: The Ardennes Case- The goods in question were oranges and they were to be
transported from cartegana, a port city of Spain to London. The shipper informed the Carrier
that he wanted the vessel to arrive in London before 1st of December b/c after that there
would be hike in the import duty and under the sales contract the hike in import duty has to
be born by the shipper. The CoC provided that the vessel would sail directly to London, it
would not deviate in Voyage to London. The Bill of lading entitled the Carrier to deviate in
Voyage. The vessel deviated and stopped at a port city of Belgium and arrived at London on
4th of December and hike in duty born by seller.

Court Said- The bill of lading is not in itself the CoC though an excellent evidence of its
terms. Once a binding contract has been concluded which would not allow deviation, nothing
printed on the bill of lading subsequently issued could alter the terms of that pre-existing
contract.
Presentation of bill of lading to the carrier at the port of destination

- What if documents have not arrived and goods have arrived? What if consignee does
not have bill of lading and goods have arrived?
- What carriers have to do in this situation?
- Carrier incorporate an indemnity clause in bill of lading. An indemnity clause is a
clause whereby a carrier handovers goods to a person who is not in possession of bill
of lading but will do so only after receiving indemnity bond from the person.

Case: Sze Hai tong Bank Ltd v Ramble cycle company ltd- A carrier who delivers goods
without production of the bill of lading does so at his own peril.

Types of the Bill of lading

1. Negotiable and non-negotiable

2. Shipped (on Board) and Received B/L
3. Clean and unclean (Claused) B/L
4. Stale B/L
5. Multi modal Transport document

Negotiable- also referred to as order B/L which indicate the carrier has to deliver the goods
to consignee and someone to whom consignee orders.

Shipped- It indicates that the goods have been placed on board the vessel for carriage.

Received: It indicates that the goods have been received by the carrier. They can be received
much before the boarding.

Unclean- Indicates that there are certain clauses, some noting which are incorporated by
carrier in the B/L b/c the carrier has found some defects in the goods on reasonable
inspection.

Clean: Indicates that there are no clauses, there are no noting which have been made by
carrier on B/L. Which indicates that the carrier has not found any apparent defects in the
goods on reasonable inspection.
Stale: B/L becomes stale b/c it was represented very late to the bank after shipment. The
bank will refuse the stale B/L. How Late? So UCP (Uniform Customs and Practice) says that
B/L represented 21 days after shipment will be considered as stale B/L.

Multimodal Transport document: In India it is governed by Multimodal transportation

rules 199..

28/8/2023 (Monday)

Stale BoL

- What if the seller doesn’t receive documents on time and b/c of that the
representation becomes late and BoL becomes stale. Does that mean he will not
receive payment b/c of reasons not in his control even after fulfilling his obligations?
- What are alternatives available to the seller?

Multimodal transport document

- Document issued by multimodal transport operator to the shipper.

- Features of MMTD are similar to BoL
- In India MMT is governed by MMT Act 1993. The act provides for registration as an
MMT operator. Only those who are registered under the act can take up the functions
of MMT Operator. Only those who have the necessary resources and are registered
can take up this function, so the interest of the shipper is adequately taken care of.
- In MMT – the contract is entered into b/w shipper and MMT operator.
- Sec 2(a) MMT act- Defines MM transportation- MMT means carriage of goods by at
least two different modes of transport under an MMT contract from the place of
acceptance of goods to a place of delivery of the goods outside India.
- The act also defines MMT document- Sec 2(la)- MMT document means a negotiable
or non-negotiable document evidencing a MMT contract. (Certain Characteristic of
MMT document are similar to BoL)
Choice of Law Clause

- It is a clause in the Contract that specifies the Law applicable.

- If there is no choice of law, Pvt International law require the forum to determine the
law.
- Party autonomy- Fundamental principle of Pvt Int Law- Autonomy or freedom of
parties to choose the applicable law. Freedom of parties to incorporate particular
clauses in the contract.

Private International Law

- it refers to that branch of law ….

Determining the choice of law

- The forum in deciding the choice of law follow the hierarchy

a. Express selection
b. Implied selection
c. Closest connection test

A. Express selection
- Parties have exercised their right to chose the governing law. Made an express choice
of law in the contract.
- Where there is express selection, the forum will respect that choice and apply that
law.

B. Implied Selection
- This come into picture when there is no express selection.
- How the forum will interpretate that there is implied selection?
- One way- If there is use of certain terms which are specific to a particular
Jurisdiction. Let’s say in a contract b/w American and German Party the parties have
incorporated the term of Nachfrist notice (Concept followed in civil law jurisdiction,
 common law does not recognize this concept). Then the forum may conclude that the
applicable law as German law.

C. Closest connection test

- the forum will look at various aspect and elements of the contract and look from
which jurisdiction the contract is closely connected.
- It will look at nationality of the parties, Place where the contract was entered into,
place of business of parties, place where the contract has to be performed, currency
of contract.

This hierarchy is reflected in the convention on the Law Applicable to contractual

obligation (Rome Convention)

- Art 3 of Convention- Freedom of choice- A contract shall be governed by law

chosen by the parties. The choice must be expressed or demonstrated with reasonable
certainty by the terms of the contract or by the circumstances of the case.
- Art 4- Applicable law in the absence of choice- To the extent that the law
applicable to the contract has not been chosen in accordance with article 3, the
contract shall be governed by the law of the country with which it is most closely
connected. Nevertheless, a severable part of the contract which has a closer
connection with another country may by way of exception be governed by the law of
that other country.
- Depecage- French tern for Spliting
- Case:Wills M. Reese in his book Depecage : Choice of law issues: Depecage can be
broadly define to cover all situations where the rules of different states are applied to
govern different issues in the same case.

United Nations Convention on the Contract for the International Sale of Goods
(UNCISG)

- Aka CISG or Vienna Convention

- Attempt to harmonize or unify sales law across jurisdictions, thereby avoid the
choice of law issues.
- Developed by UNCITRAL
- There is no specific forum which will deal with the CISG.
 - If parties have not incorporated the choice of law clause and when states are parties
to CISG, the forum is likely to apply the CISG.
- It’s likely to be applicable law. Why even if both the states to which parties belong
are part of CISG, it may not be applicable law? Parties can exclude the applicability
of CISG (B/C it allows parties to exclude CISG under Article 6). However, the CISG
does not mention whether the exclusion should be implied or expressed.
- Considered to be one of the most successful documents in the context of the sale of
goods
- India is not party to CISG. Still, CISG may apply to a contract Where an Indian is a
party to the contract. US and Germany both are parties to CISG.
- CISG is not exhaustive – number of things are excluded from it- b/c it is a binding
document
- Thus, even incorporating CISG is not complete choice of law. Here the forum have to
go back to the Hiearchy.

29/8/2023 (Tuesday)

CISG

- Problem arises when the parties have not expressly excluded the applicability of
CISG.
- Certain types of sale of goods are excluded from the purview of CISG under art 2.
Thus, even if parties belong to states who are party to CISG, it would not be
applicable b/c it does not deal with those type of goods.
- CISG is divided into 4 parts
1. Part I- Sphere of Application and General Provisions
2. II- Formation of Contract
3. III- Rights and obligation of buyers and sellers and remedies available for breach
of contract
4. IV- reservation
Reservation

- Provisions whereby a state expresses its intention to exclude or modify the

applicability of certain provisions of the convention.
- It allows a state to remain party to a convention but at the same time the state would
not be bound by certain provisions of the convention.

Applicability of CISG

- Art 1 to 6, 10, and 95- for the purpose of determining whether CISG is applicable.

Art 1

- This convention applies to contracts of sale of goods b/w parties whose places of
business are in different states.
(a) When the states are contracting states, or
(b) When the rule of private international law leads to the application of the law of a
contracting state.

 How do you determine the international character of contract

- Nationality
- As per art 1 international character is determined on the basis of place of business.
However, it does not explain what does the place of business mean.
- (B) –
Ex. Let say X (place of business in India)- Y (Place of business in Canada)
Here sub para (a) would not be applicable b/c only Canada is party to CISG not India.
(c) If forum after applying rules of pvt International law determines that the
Applicable law would be law of Canada then CISG would be applicable.
- Let say instead of Canada, Place of Contract is US. Here forum need not go to
applicability of Para (b) of CISG b/c of art 19 of CISG.
 Art 10

- For the purpose of this convention, if a party has more than one place of business, the
place of business is that which has the closest relationship to the contract.

Art 6

- The parties may exclude the application of this convention or vary the effect of any
of its provisions.

 This article incorporates the principle of party autonomy. It also allows parties to
exclude certain provisions of CISG. But the art does not mention whether the
exclusion should be expressed.

Art 95

- Any state may declare at the time of deposit of its instrument of ratification or
accession that it will not be bound by subparagraph 1(b) of art 1of this convention.
 US has exercised this option.

Accession is an act of state to agree to become a part of the treaty by …. It happens after
treaty comes into force.

Article 2- This convention doesn’t apply to sales:

a. Of goods bought for personal, family or household use.

b. By auction

c. By authority of law

d. Of shares, investment securities, negotiable instruments or money

e. Of vessels or aircrafts

f. Of electricity
Article 3- Contracts for the supply of goods to be manufactured are to be considered sales
unless the party who orders the goods undertakes to supply a substantial part of the materials
necessary for such manufacture.

Substantial part is decided from the economic point of view.

Article 4- This convention governs only the formation of the contract of sale and the rights
and obligations of the seller and the buyer arising from such a contract. In particular, this
convention is not concerned with the validity of the contract.

Article 5- This convention doesn’t apply to the liability of the seller for death or personal
injury caused by the goods to any person.

For matters that are not governed by the CISG, the parties can use UNDROIT principles for
supplementing the contract:

The inspiration for UNDROIT principles comes from restatement of contract law- American
Law Institute. Restatement is not meant to have binding effect but

5/9/2023

UNIDROIT Principles

- Not binding.
- They become binding only when parties.
- Preamble- says that principles shall apply if the parties have chosen. Evrywhere else
it uses the word may.
- One of the purposes to fill the gaps in CISG.
- The principles apply to commercial contracts only.
- If at all conflict arises applicability of CISG and principles: Two possibilities
a. Contract for sale of goods
b. Commercial contract other than sale of goods- CISG not applicable b/c it is only
applicable in case of sale of goods
- Even in the case of contract for sale of goods principles are broader in scope than
CISG- b/c were drafted to fill the gaps in CISG. Thus, while drafting the principles
the CISG was an obligatory point of reference. In relation to CISG they are more
comprehensive:
 a. One of the purposes was to supplement the CISG, to fill the gaps.
b. Principles are not meant to be binding, CISG is binding if ratified. Since
negotiating states could not come to a consensus, a lot of aspects were kept
outside the purview of CISG.
- Two hurdles with respect to CISG
a. Gaps
b.
- Rules for interpretation of CISG has been provided in CISG itself
a. Art 7 Paragraph 1- In the interpretation of this convention regard is to be had to
its international character and to the need to promote uniformity in its application
and the observance of good faith in international trade.
Para 2- Questions concerning matters governed by this convention which are not
settled in it are to be settled in conformity with general principles on which it is to
be based or in the absence of such principles in conformity with the law applicable
by virtue of the rules of private international law.
 This article serves as a guiding principle for the forum. Para 1 lays down rules for
interpretation, para 2 serves as a guiding principle to the forum on how the gaps are to
be filled.
 Gap b/w theory and practice- Very often judges fail to keep in mind the principles of
interpretation in mind (regard is to be had to its international character). It should
not be interpreted as a national court would interpret a national contract. this problem
more likely to arise when forum is national court.
 need to promote uniformity in its application- How can a forum achieve this? It
requires the forum to look at matters of similar nature decided by forum in other
jurisdiction.
 CLOUT- Case law on UNCITRAL text-
 M. Bonnell in his book UNCISG- Despite art 7 para 1courts tend to interpret the
vienna convention with the domestic legal lens. Very rarely do courts take into
account the solutions adopted on the same point by courts in others jurisdiction. –
 Para 2 provide for filling the gaps in CISG
- Filling gap is two-step process
Art 11- A contract of sale need not be concluded in or evidenced in writing and is not subject
to any requirement as to form.

General burden of proof rule – General principles of convention

- Party has to proof the fact, the claim, defence which he is ascerting.

6/9/2023

Gaps or ambiguities in CISG and how the principles fill these gaps.

- CISG exclude issues related to validity of Contract, Chapter 2 of UNIDROIT

principles deals with validity.

Art 3 of Principles- A party may avoid the contract when it has been laid to conclude the
contract by the other party’s fraudulent representation or fraudulent non-disclosure of
circumstances which according to reasonable commercial standards the latter party should
have disclosed.

Payment of Interest- CISG though it makes the mention of interest but there is no clarity
about the same.

Art 78 of CISG- If a party fails to pay the price or any other sum that is in arrears, the other
party is entitled to interest on the rate.

- It does not talk about the rate of interest or how that interest is to be calculated.

Art 7.4 of the principles- If a party does not pay a some of money when it falls due, the
aggrieved party is entitled to interest upon that sum from the time when payment is due to the
time of payment.

The rate of interest shall be the bank lending rate to prime borrowers prevailing for the
currency of payment at the place for payment.
 - Who is prime borrower- Bank generally classifies borrower as prime and sub-prime
borrower. Prime borrowers are those who on the basis of his credit rating not just
likely to pay loan but also on the timely manner. Sub-prime borrower are those who
are more likely to not pay the loan on time.

CISG does not mention anything about hardship

Art 79 of CISG- Force majure

Principles deals with Force Majure (In Chapter titled Non-Performance) as well as hardship
(In chapter titled performance) under art 6 and 7.

- if party pleads force majure, then he is not required to perform his contractual
obligation, while on the other hand if party pleads hardship, it is still expected to
perform it’s contractual obligation.
- Would you expect a party, when he is suffering hardship, to perform contractual
obligation just in the same manner as it was expected to perform when entered into
contract. If that is the case then what is the point of impleading hardship?
- Hardship- Change in circumstance from the time when the contract concluded and
b/c of same it becomes very hard for the party to perform the contract.
- How party facing hardship be given some relieve- Ex. – Terms of the contract may
be renegotiated in order to take the hardship into account- ex. Extension of time,
- Principles of Force majure are more strict b/c here party impleads to be absolved
from performance.
- Some of the forums have read hardship into art 79 of CISG. while some said that
parties will be absolved when there is force majure.

Art of CISG 3366gtt

How parties should draft the choice of law clause? What are the options available to them?

Ex. “The contract would be Governed by CISG and the matters not governed by CISG by
General principle of International Law/ law of particular country.”
 - There is possibility that the forum may consider laws of particular country as general
principle of law.

Fundamental Breach of Contract

- Entitles/Allows the non-breaching party to avoid the contract in addition to bring the
actions for breach of contract.
- It’s a breach so fundamental that it entitles non-breaching party to avoid the contract.
- Significance- Pre-condition to avoid the contract.
- How do you determine that the breach is so fundamental? What are the factors which
the court must take into account?
- Art 25 Of CISG deals with fundamental breach of contract.

8/9/2023

For Midterm

- Need for international trade- Theories justifying international trade- absolute and
comparative advantage theory.
- Certain risks that can arise- legal, political, currency, language, cultural
a. Legal risk- choice of law clause
(i) Different jurisdiction- Common law and civil, Even, if from same
jurisdiction difference in law.
(ii) Nature of business transaction- export v counter trade

- Documentary credit transaction- LoC

a. Necessary documents to be presented to the bank by seller will depend upon the
main sales contract- ex. Whether the contract is CIF, FoB, etc.
b. Confirmed LoC-
- INCO terms- Drafted by ICC-
a. 11 terms – 4 categories
b. 10 obligations of seller and corresponding 10 of buyer
c. FOB and CIF in detail
d. CIF- most elaborate term is insurance
 e. CIF – essential feature- BoL- default in case of CIF- negotiable

- Carriage of Goods by Sea

a. Reason-
b. transport document-BoL
c. BoL-
(i) Features
(ii) Disclaimer clause- Interpretation of courts
(iii) May operate as document of title
(iv) Contract of carriage or evidence of CoC- In hands of shipper BoL operates
as evidence of CoC- if difference b/w CoC and BoL
(v) If carrier delivers goods in absence of BoL- Indemnity bonds from
consignee- to make good any loss which the carrier may suffer for having
deliver goods in the absence of BoL. Courts- If carrier delivers goods in
absence of BoL even after indemnity bond- does on his on peril
- MMT Document
- Choice of Law
a. Rome convention- provides hierarchy, principle of Depecage
b. CISG
(i) To determine Applicability of CISG- Art 1 to 6, 10, 95, certain type of
goods is excluded. Some states opted out of Sub para 1(b) of CISG
(ii) Not exhaustive- UNIDROIT principles- fill gaps in CISG and better
interpretate CISG – Ex. Interest,
c. General principles of international law- National court more likely to apply it’s
own rules of private international law.

Question paper

- Identify the issue- call of the question.

- Identify the rule- provision or a case law.
- Analyze the fact of hypo with the rules.
- On the basis of analysis come to the conclusion.
Don’t right issue, rule analysis, conclusion- right in the form of essay.

18/9/2023 (Monday)

20/9/2023 (Wednesday)

Fundamental breach of Contract

- Art 25 of CISG
- Does not say whether detriment has to be monetary?
- Substantially deprives what was expect to get from the contract.
- Art 25 – example of ambiguity in CISG.

 Inability of party to perform his contractual obligation. Ex. Fire in the seller’s
premise. ex. Seller 1st buys from another seller and resales it to buyer, in this situation
if seller receives goods late.

Art 7.3 of UNIDROIT Principles

“In determining whether a failure to perform an obligation amounts to a fundamental breach

of Contract regard shall be had to whether,

(a) The breach substantially deprives aggrieved party of what it was entitled to expect
under the contract unless the other party did not foresee and could not reasonably
have foreseen such result.
(b) Strict compliance with the obligation which has not been performed is of essence
under the contract.
(c) The non performance is intentional.
(d) The non-performance gives the aggrieved party reason to believe that it cannot rely on
the other party’s future performance.”
Fundamental rule of International commercial agreements

Pacta sund servanda- Agreements must be kept.

Art 79 CISG- Force majeure- Greater force

“A party is not liable for a failure to perform any of his obligation if he proves that the failure
was due an impediment beyond his control and that could not reasonably be expected to have
taken the impediment into account at the time of conclusion of the contract or to have
avoided or overcome it or its consequences.”

- Deals with situation where party is not able to perform contractual obligation due to
circumstances beyond his control or party could not perform his obligation due
failure of 3rd party.

Lepeaupin v Crispin- Explained the concept of Force majeure by distincting it with vis
major.

“The expression force majeure is not a mere French version of the Latin expression Vis
major. It (force majeure) is undoubtedly a term of wider import. Strikes, breakdown of
machinery, which though normally not included in vis major are included in force majeure.
The intention of FM is to save the performing party from the consequences of anything over
which he has no control. This is the widest meaning that can be given to FM.”

- Whether breakdown of machinery is beyond the party’s control?

- Art 79 of CISG does not use the word FM.
- Recourse to art 79 can be sought by either party.

General principles on which convention is based- the party who seeks absolvlity, the burden
of proof.

For art 79 the burden of proof on party who seeks

Ingredients of Art 79

1. Existence of an impediment.
- The working group who drafted CISG used the word “impediment” to avoid the
relation with any particular legal system. But CISG does not explain what does the
word means.
2. Impediment must be beyond the control of party claiming the exemption.
- The party who is claiming exemption.
- Pacta sund servanda- Agreements must be kept.
- This is based on the assumption that every party has his sphere of control and parties
are expected to fulfill those obligations which are under party’s sphere of control.
- Acts beyond party’s control- Natural disasters, war, act of Govt.
- Certain acts have origin within the party’s sphere of control but may eventually go
beyond that party’s sphere of control. Ex. The act of Sabotage within the seller’s
premises. Seller’s premise is within his control. Has he maintained the requires
safety?
- Financial incapability- not the impediment that art 79 talks about. Only exception is
prohibition by state on foreign exchange reserve and transfer of foreign exchange
reserve in another country. This impediment must come into force after the
conclusion of contract.
3. Party who is claiming exemption could not reasonably be expected to take the
impediment into account at the time of conclusion of contract- Foreseeability.
- Art 25.
- Only when impediment occurs after the conclusion of contract.
- Whether the party could be reasonably be expected to take the impediment into
account at the time of conclusion of contract. Even if the impediment occurs after the
conclusion of contract. Could the party’s have reasonably expected the impediment.
It will be determined on the fact to fact basis.
4. The party claiming the exemption could not be expected to avoid the impediment,
overcome it or it’s consequences.
-
22/9/2023 (Friday)

The comments of working group on art 79-

“This rule reflects the policy that the party who is under an obligation to act must do all in his
power to carry out his obligation and not awaits events which later justify his non-
performance.”

One common impediment- where the seller’s country places restriction on export of goods to
buyer’s country. This is an impediment beyond party’s control. Or if the buyer’s state
restricts import from seller’s country.

In One of the situation buyer refuse to accept delivery of goods by citing negative market
condition. This was not held to be an impediment by the forum.

Foreseeability

Case before China international economic and trade arbitration Commission

- The seller sought to be exempt from liability under art 79 of CISG b/c he was unable
to procure milk powder which met the import regulations of the buyer’s country. The
forum refuse to absolve the seller from liability b/c at the time of conclusion of
contract the seller was aware of the import regulations of the buyer’s country.
Therefore, he assumed the risk of arranging goods as per regulations of the buyer’s
country.

Case before Bulgarian Chamber of Commerce and industry

- The seller sought to exempt from liability. The goods in question were tomatoes. The
reason seller was not able to fulfill is the crop was destroyed due to unseasonable rain
and there were shortage of tomatoes and also increase in the price. The forum said
that the entire crop was not destroyed, thus the impediment could have been taken
care of.
Para 2 of Art 79 of CISG

“If the party’s failure is due to the failure by 3rd person whom he has engaged to perform the
contract, that party is exempt from liability only if

a. He is exempt under the preceding paragraph.

b. The person whom he has so engaged would be so exempt if the provisions of that
paragraph were applied to him.”

25/9/2023 (Monday)

- Usually para 2 Art 79 comes to rescue seller, while it uses the word party.
- If subpara (a) is not applicable, there is no need for forum to go into subpara (b)
- Ex. In a contract entered into b/w seller and buyer. The seller has to provide certain
specific goods to the buyer, which require use of particular technology. The third
party (T) who has that technology to manufacture and has reputation for that
technology. S contracts T for manufacture those goods. T makes several errors in the
manufacturing and T is not in position to deliver goods to S and S ultimately not in
position to deliver goods to B. Let’s sat this contract is govern by CISG.
- Here T was negligent. This is not the type of impediment that CISG takes into
account. Here subpara (b) is not met.
- Art 79 requires impossibility of party to perform.

UNIDROIT Principles

- Deals with force majeure under chapter titled non- performance. This indicate that
where there is FM, party is not expected to perform contract.
- Deal with Hardship under the chapter titled performance. This indicate where there
is hardship party who suffers hardship still expected to perform the contract. How
perform? Perform to what extent? B/c what is the purpose of raising the hardship if
the party is still expected to perform the contract in the same way which he was
supposed to when the contract entered?
- How do you determine there is hardship?- Principles define.

Chapter 6- Performance
Art 6.2.1- Contract to be observed

“Where the performance of the contract becomes more onerous for one of the parties that
party is nevertheless bound to perform its obligations subject to the following provisions on
hardship.

- How does forum determine that the performance has become onerous?

Art 6.2.2 – Definition of hardship

“There is hardship where the occurance of event fundamentally alters the equilibrium of the
contract either b/c the cost of party’s performance has increased or b/c the value of
performance a party received has diminished and

a. the events occur or become known to the disadvantaged party after the conclusion of
the contract.
b. the events could not reasonably have been taken into account by the disadvantaged
party at the time of conclusion of the contract.
c. the events are beyond the control of disadvantaged party.
d. the risk of the events was not assumed by the disadvantaged party.”

Fundamental alteration in the equilibrium of the contract- The working group

1. whether an alteration is fundamental in a given case will depend on the circumstances.

2. If performances are capable of precise measurement in monetary terms and alteration
amounting to 50% or more of the cost or value of performance is likely to amount to a
fundamental alteration.

26/9/2023 (Tuesday)

The cost of party’s performance has increased

- How may the cost of performance for increase. Ex.

a. Cost of raw material may increase.
b. New safety regulations have been introduced after the conclusion of contract
which require seller to more expensive manufacturing procedure.
- This usually deals with the seller- who has to perform the non-monetary obligation.
The value of performance a party received has diminished

- This is dealing with the buyer.

- How may the value of performance the buyer is intitled to receive diminished. Ex.
a. Negative market condition.
b. Inflation
c. The performance no longer has any value for receiving party-ex. the buyer has
entered into contract to further export the goods to third party. After the
conclusion if buyer’s country imposes ban on the export to third party’s country.
The performance no longer has any value for buyer b/c he will not be able to
export it to 3rd party. He now has to another market for supply of those goods.

 risk of the events was not assumed by the disadvantaged party

- If party have assumed the risk i.e the contract itself provide for it. ex. “Currency
fluctuation will be born by buyer.” Then the terms of contract will supersede the
principle of hardship

Art 6.2.3- Effects of Hardship

“In case of hardship the disadvantaged party is entitled to request renegotiation. The request
shall be made without undue delay and shall indicate the grounds on which it is based.

Upon failure to reach and agreement within a reasonable time either party may resort to the
court.

If the courts finds hardship it may

a. Terminate the contract

b. adapt the contract with the view to restoring its equilibrium

- What if there is delay in sending the notice? Does that mean that the party who is
suffering the hardship is not entitled to seeking the benefit of hardship?
- If there is delay, does there can be doubt as to whether hardship really exists?
 - What if the notice does not mention the grounds of the request?

India and CISG

- Despite the fact that India is not party to CISG, an Indian party may be Governed by
the CISG.
a. party autonomy- Express choice by the parties
b. by virtue of Art 1(1)(b).

Advantage of CISG

a. Unifies the law in the area of International contract of sale of goods. It avoids the
party of choice of law. If the party fails to chose the law, the forum may apply CISG
b. 2/3rd of major trading nations are party to CISG.
c. Prior to the CISG was the ULIS (Uniform law on international sale of goods). CISG
kept in mind the problems of ULIS and addressed them.
d. Clout- case law on UCITRAL trade.

Disadvantages/Problems of CISG

a. CISG is not an exhaustive document. Even choosing CISG as governing law will not
be the complete choice of law. Parties need to Supplement the CISG with some other
law.
b. Interpretation of CISG- b/c if the matter goes before the national court. Although art 7
provides for how the CISG has to interpretated. It requires the forum to look into the
decisions given by other forum on the same issues. But there is a gap inn theory and
practice. Very rarely forums take into account the international character and see it
with domestic legal lens.
c. Art 6- It allows party to exclude the application of CISG. It does not mention whether
the opting out has to be done expressly or impliedly. Art 6 also allows to vary effect
of any of the provisions of CISG. It doesn’t do well for a weaker party b/c a dominant
party can use this to his advantage. Opting out also weakens the position of CISG as
Unified law.
 d. Provisions of CISG more familiar to civil law lawyer than to common law lawyer.
This coupled with opting out can put the weaker party to disadvantage.
e. Clout- Very less case laws from common law jurisdiction

27/9/2023 (Wednesday)

Trade Finance

- Umbrella term used to refer to various financial instrument which parties use in order
to mitigate risk in international transaction.
- Payment also a very important for a successful completion of an international
contract.
- 2 instruments- LoC and Bank Guarantee. These are the services which bank provides
for its customers which means bank will charge them for the service. Thus, if parties
have developed a mutual trust, then they may not be want to incorporate these
financial instruments. But, most probably parties use these instruments.

LoC

- Means of financing/ Means of making payment.

- Takes care fundamentally contradicting interest of seller and buyer.
- This is a most secured means for international transaction.
- aka documentary credit transaction.
- Loc has been explained by Paul Todd in his book bills of lading and banker’s
documentary credit- “In a LoC transaction there is an undertaking by a bank issuing
the documentary credit at the request of its customers to pay the beneficiary a
specified amount on condition that the beneficiary presents necessary documents to
the bank. The documents evidence amongst other things shipment of the goods
within the prescribed time.”
- In LoC, seller has a promise from bank that the bank will make payment but only on
the condition that the seller will present necessary document to the bank.
- Document can be bill of lading but not have to be BoL b/c in case of FOB contract
it’s proof of delivery. The documents the seller has to provide will depend upon what
is agreed b/w the parties and what are the trade terms they have incorporated.
 - Stages involved in the LoC transaction
a. Parties in the main sale contract have agreed to payment by LoC.
b. Buyer may approach his bank to establish/issue a LoC in favor of seller.
Responsibility of opening the LoC is on buyer b/c he has responsibility of
payment to seller. Bank will 1st find the creditworthiness of the buyer. Bank wil
take some security and collateral from the buyer. Buyer’s bank may require the
bank in seller’s jurisdiction to advice the seller. Advising bank just acts as link
b/c the seller and the issuing bank. Advising bank can be a branch of buer’s bank
in the seller’s jurisdiction. When there is advising bank, then the payment is made
by buyer’s bank to seller. The advising bank does not make payment, it just play
the role of advising and a link.
c. But if the contract mentions of confirmed LoC. There is confirming bank (seller’s
bank) involved. In this case seller receive payment from his own bank located in
his own jurisdiction. In this case once the LoC has been established and seller has
assurance that if he fulfills contractual obligations and present necessary
document, the payment will be made. Let’s say It’s CIF contract. Seller after
fulfilling his obligations presents necessary documents to the bank in seller’s
jurisdiction. Bank will examine the documents. Bank will satisfy itself that the
documents as confirming and will make payment.
d. Seller’s bank now forward documents to the issuing bank. The Issuing bank will
examine the documents and will find that the documents are in order and will
make payment.
e. Now Issuing bank will inform the buyer that we have necessary documents and
payment is due under LoC transaction. Now buyer will make the payment and
will receive the documents. Now buyer have documents. Now he is in position to
further sell the goods or he will use the documents to receive the goods from
carrier.

29/9/2023 (Friday)

4/10/2023 (Wednesday)
 - Where the bank refuses to make payment when the documents are confirming, the
bank is in breach of contract. Where the documents are confirming, bank has
absolute duty to make payment.
- What if the bank makes payment when the documents are non-confirming? The bank
will be in breach of contract. B/c it is on the strength of documents bank determine
that the seller has fulfilled his obligation.
- LoC take care of interest of buyer as well as seller.
- Once the letter of credit established, the seller has promise from the bank that the
bank will make payment if the seller fulfills his obligation. In the absence of LoC
seller has promise from buyer. In such a case seller runs the risk that after the seller
has shipped the goods what if the buyer is not in the position to make payment.
Getting payment from an individual is more difficult that getting it from bank.
- Seller gets payment as soon as he fulfills his obligation. He does not have to endure
the extending period when the goods travel from his to buyer’s jurisdiction.
- As soon as does not mean immediatly, he gets payment after the bank examines the
document and finds the documents in order.
- In case of confirmed LoC, Confirming bank (Bank in seller’s jurisdiction) is involved
and seller gets paid from his own bank.
- Although in LoC transaction buyer has paid much before the goods arrived and
before examining them, but he has assurance that the bank has examined the
document mentioning that the goods are confirming.

Case: Voist Alpnie International Corp v Chase Manhattan Bank (1963) 707 F2d 680 – US
court has explained the LoC as follows- “A typical LoC transaction (referring one bank being
involved) involves 3 separate and independent relationship

a. Underlines sale contract b/w the buyer and the seller.

b. An agreement b/w bank and its customer in which the bank undertakes to issue a LoC.
c. Banks agreement to pay the beneficiary provided he presents necessary documents to
the bank.”

 How should the documents be examined? What is the standard of care the bank
should take while examining the documents? What is time bank has to examine the
documents?
 - Bank in different jurisdictions follow different procedure. Ex bank in one jurisdiction
may take 5 days while the bank in other jurisdiction may take 10 days. A need was
felt to harmonize the process in different jurisdiction.
- In order to have Uniformity ICC developed “Uniform customs and practices for
documentary credit (UCP)”

 UCP
- 1st developed in the year 1933. Thereafter there have been several revisions in the
UCP. The latest version of UCP is referred to as “UCP 600.” It was published in …
and came into force…
- It lays down rules which are to be followed by the bank while examining the
documents.
- Applicability of UCP- Art 1

Art 1- “The Uniform customs and practices for documentary credit are rules that apply to any
documentary credit when the text of the credit expressly indicates that it is subject to these
rules.”

- Means the rules are voluntary rules. They will be applicable only when the parties
specifically incorporate UCP in terms of credit.
- Almost all LoC transaction which are issued under the international business
transactions are governed by UCP
a. b/c they only uniform rules available. There are no other rules which could be
applicable in international business transaction.
b. Often referred to rules framed by bankers for bankers. The rules are not so strict
on banks.

Art 2- “Applicant means the party on whose request the credit is issued.”

Beneficiary means the party in whose favor the credit is issued.

Confirmation means a definite undertaking of the confirming bank in addition to the issuing
bank to …

Confirming bank means…

Credit means any arrangement however named or described that is irrevocable.

Issuing bank means…

5/10/2023 (Thursday)

Credit means any arrangement however named or described that is irrevocable.

 Therefore, default LoC is irrevocable. It constitutes an undertaking on the part of

issuing bank to honor the complying presentation. Honor means to make payment.
 What is meant by complying presentation-While issuing LoC the bank impose certain
terms and conditions and only after those terms and conditions are met bank makes
payment. One of them is beneficiary must present necessary documents. The bank can
also impose other terms and conditions such as the beneficiary must present the
documents within the certain days.

Types of LoC

1. Revocable v Irrevocable
2. Unconfirmed v Confirmed

 Revocable
- The credit can be revoked on instructions received by the bank from the buyer before
the bank has made the payment without any consultation with the beneficiary.
- This type of LoC is least secure for the beneficiary and therefore not a norm in
international business transaction.

 Irrevocable
- LoC cannot be revoked.
- If the presentation is complying, the bank is under absolute obligation to make
payment.
 - If any amendment needs to be done, it can only be done after the consultation and
consensus with both the parties.
- Art 2 specifies that the default Credit is irrevocable.
- The norm is Irrevocable LoC
-
 Art 3- “A credit is irrevocable even is there is not indication to that effect.”
 Art 10- “A credit can neither be amended nor cancelled without the agreement of the
issuing bank, the confirming bank if any, and the beneficiary.”
 Problems that can arise in Irrevocable type of LoC
- The seller may doubt the creditworthiness of buyer’s bank. (Irrevocable and
unconfirmed LoC)
- Even if the buyer’s is in position to make payment but the Government of buyer’s
country impose restrictions on the transfer of funds in seller’s jurisdiction.
(Irrevocable and Unconfirmed LoC).

 Unconfirmed
-
 Confirmed
-

LoC Transaction is Governed by two principle which are also reflected in UCP

1. Autonomy/Independence of LoC
- Art 4 and 5 Incorporate this principle
- Art 4- “A credit by its nature is a separate transaction from the sale or other contract
on which it may be based. Banks are in no way concerned with or bound by such
contract even if any reference whatsoever to it is included in the Credit.”
- Art 5- “Banks deal with documents and not with goods or services to which the
document may relate.”
- The autonomy is a rule which says that the paying bank has absolute obligation to
pay if the documents are confirming.
- Ex. Main contract requires the seller to ship goods of grade A quality. LoC credit
require one of the document evidencing that the seller has shipped the goods of
Garde A quality. If the beneficiary presents this document with other necessary
 documents, this will be considered as complying presentation. Even if the seller has
shipped goods of Grade B quality but there are documents which show that the goods
shipped were of Grade A quality bank is under absolute obligation to make payment.

Case: Discount Records Ltd v Barclays Bank, (1975) Lloyds Rep 444

- In this case when the buyer received goods they were not confirming. payment had to
be made by LoC. In this case the bank had not made the payment before the buyer
received goods b/c documents had arrived late. Buyer sought an injunction
restraining the bank to make payment. Court refused the injunction and said that
when the documents are confirming bank is in absolute obligation to make payment
otherwise the bank will be in breach of its contract.
- Court: Banks obligation under the LoC was separate from Contract of sale. The
seller enters into a contract of sale with payment through LoC on the belief that he
will be paid upon shipment. It is on this belief that he manufactures the goods. If the
courts were to intervene, the certainty of payment associated with a LoC would be
seriously affected.

6/10/2023 (Friday)

 Autonomy principle has also been recognized by the Indian SC.

Case: Tarapore & Co. v Tractors Export Moscow (1969) 2 SCR 920

- The court said a LoC is a mechanism of great importance in an International trade

and so the autonomy of LoC is entitled to protection. Any interference with that
mechanism is bound to have serious repercussions on the international trade of the
country and courts ought not to interfere with mechanism except under exceptional
circumstances.

Exception to the autonomy Principle

 Fraud Exception-
- This exception recognizes that when there is fraud in the transaction, fraud of which
beneficiary is aware of autonomy principle cannot be extended to protect him. But
how the buyer will establish fraud. If all that he has just to allege fraud then certainty
 associated with LoC will get hampered. Therefore, mere allegation of fraud will not
suffice.
- One of the earliest cases in which fraud exception was evolved in a decision of US
court in the case of

Case: Sztejn v Henry Schroder Banking Co, 31 NYS 2d. 631 (1941)

- It is well established that a L/C is independent of the contract of sale b/w the buyer
and the seller. The issuing bank agrees to pay upon presentation of documents not
goods. This rule is necessary to preserve the efficacy of the L/C as an instrument for
financing of trade. It would be a most unfortunate interference with business
transaction if a bank before honoring payment was allowed to go behind the
document at the request of the buyer and enter into controversies b/w the buyer and
the seller regarding the quality of the goods shipped.
- Of course, the application of principle of independence presupposes that the
documents presented are genuine and confirmed in terms to the requirement of the
L/C. In such a situation where the seller’s fraud has been called to the bank’s
attention before payment, the principle of independence under the L/C should not be
extended to protect the fraudulent seller.
- The court further said that the essence of this exception is that the bank can either
avoid payment or it can be prevented from making payment, if at the time of
presentation of documents stipulated under the credit, the beneficiary has
misrepresented the facts which had the bank known of it would entitle the bank to
avoid payment under the credit. In other words had the beneficiary been truthful in
his representation he would have presented documents that did not comply with the
terms of the credit.

 If fraud is brought to the notice of bank before payment there are two
possibilities
1. The bank can either avoid payment, or
- Bank on its own, voluntarily avoided to make payment.
2. Can be prohibited to make payment.
- By injunction order of court.
  By theoretically bank can avoid payment but for all practical purposes bank is
requiring buyer to approach court and seek injunction. The reason is that where the
documents are confirmed bank is under absolute obligation to make payment. What if
buyer is just alleging fraud just to avoid payment.

9/10/2023 (Monday)

 But if the fraud is on the part of 3rd party? Would 3rd party fraud be also come
under the ambit of fraud exception?

Case: United City merchant Ltd v Royal Bank of Canada

- House of Lords in this case has limited the fraud exception only to the cases in which
fraud is committed by the beneficiary or the beneficiary has knowledge of fraud.
Fraud on the part of 3rd party is not brought under the fraud exception.
- The house of lord said to this principle of independence as to contractual obligation
of the confirming bank to the seller there is one exception i.e. where the seller
fraudulently presents to the confirming bank documents that contain representation of
facts that to his knowledge are untrue.

“ A controversial decision”

In his book R Jack, “Documentary credits: The law and practice of documentary credits” has
interpreted the above house of Lords decision- “The house of lords held that a bank is obliged
to pay even in case of fraud b/c the beneficiary did not have the knowledge of fact. The effect
of this decision is that the identity of the party who perpetrated the fraud is crucial. A
document forged by a 3rd party without the involvement of the beneficiary will not provide a
ground to refuse payment under the fraud exception.”

- One group which criticized the decision says that fraud is fraud despite the fact who
commits it. This rule can also become breeding ground for fraudsters by collusion.
Case: Standard retail Pvt Ltd v M/S G.S Global Corporation & Ors, 2020 Bombay
HC.014

- In this case a Contract was entered b/w Standard Retail (Petitioner, A Mumbai based
Company) and G.S. Global (Respondent, South Korean Corporation). The Contract
was CFR Contract. As per contract the R has to supply goods to P. Respondent has to
arrange for shipment. The goods have been shipped and after that present action was
brought by petitioner claiming that the Contract is terminated due to Force Meajure.
The FM clause as per the wording of contract can only be resorted by the seller. The
petitioner also pleading that the Bank ought not to make payment to the seller.
- Court in this case recognized autonomy principle and said “The letter of Credit is an
independent transaction with the bank and the bank is not concerned with the
underlying dispute b/w the buyer and the seller.”
- “The FM provision in the present case can come to the benefit of seller and not buyer
b/c that is not within the ambit of provision.”
- “….
- The court also said that the notification of director General of shipping Govt of India
has not brought any restriction wrt to steel and steel has been brought under the
essential commodity.

2. Doctrine of Strict compliance

- To some extent this doctrine has been watered down by UCP 600.
- This Doctrine recognizes that the document tendered by beneficiary must be in strict
compliance to the terms of the contract.
- Even the failure to dot an I or cross a T would amount to a discrepancy.
- If there will be any discrepancy the bank will reject the document and will refuse the
payment.
- What is the purpose behind the doctrine of Strict compliance? One of the reasons is
the bank should not be held liable. Since there could be number of things which may
be well prevalent b/w the traders but bank may not be aware about it. Thus, if the
bank does what is told, it will be safe. Where the bank makes payment against
document not confirming, the bank will be in breach of its contractual Obligation.
 - Ex. B/w traders Goods A and X may be same but bank does not know it.
- This doctrine also gives buyer an assurance that when he will receive the goods, they
will be confirming.
- A book by Foslon Gordon Spenegal in their book “International...” says that “The
principle establishes a general rule which ensures that the bank will only pay if the
documents received comply strictly with the terms and conditions of the L/C. The
principle aims to protect the buyer who neither has an opportunity to examine the
physical goods not to supervise the process of loading the goods in the seller’s
country due to the geographical distance.”

10/10/2023 (Tuesday)

Doctrine of Strict Compliance

- The doctrine aka Mirror image doctrine.

- The English Court in the case of J.H Rayner & Co. v Hambros Bank Ltd Explained
the doctrine – “There is no room for document which are almost the same or which
will do just as well. The bank cannot take upon itself to decide what will do well
enough and what will not. If it does as it is told it is safe, if it departs from the
conditions laid down it acts at its own risk.”
- In this case Credit referred to Coromandel Groudnuts. The bill of lading referred to
machine shelled Groudnuts. Bank refused documents. Beneficiary contend that these
two groundnuts are just the same.

Case: Seaconsar v Bank Makazi, Iran

- In this case some of the documents presented by beneficiary failed to incorporated

the L/C number (Bank while issuing L/C also gives a number and documents must
incorporate that number). The beneficiary contended that the failure to incorporate
number in some of the documents is a trivial discrepancy b/c it not going to have any
impact on the goods received by the buyer and should be ignored.
- Court held that while interpreting doctrine if the terms and conditions of L/C so
required, then failure to incorporate number will make the document discrepant and
will entitle the bank to refuse document.
  Compliance
- Strict- Where the bank follows doctrine of strict compliance, the risk of discrepant
document is on the beneficiary. But it seriously affects the efficacy of L/C as a means
of making payment. B/c the documents runs into hundreds of pages and if the mirror
image doctrine is followed, there will almost always be one or the other discrepancy.
- Substantial- The risk of discrepant document is with the bank b/c it the bank who
says that the documents are in substantial compliance.

 UCP provides for concept of waiver.

Art 14 of UCP- Standard for examination of documents

(a) A confirming bank if any and the issuing bank must examine a presentation to
determine on the basis of documents alone whether or not the documents appear on
their face to constitute a complying presentation.

On their face basically means bank are not required to go behind the documents. Bank is not
required to check with the carrier the authenticity of signature. If the document is signed,
bank need not to examine whether the person who singed the document has the authority to
sign the documents or not.

(b) A confirming bank, if any, and issuing bank shall each have a maximum of 5 banking
days following the day of presentation to determine if a presentation is complying.

UCP 400 said that the bank has reasonable time to examine the documents.

(d). Data in a document when read in context with the credit, the document itself and
international standard banking practices, need not be identical to but must not conflict with
data in that document, any other stipulated document or credit.

Art 15- Complying presentation

(a) When an issuing bank determines that a presentation is complying it must honor.
(b) When a confirming bank determines that a presentation is complying it must honor
and forward the documents to the issuing bank.

Art 16- Discrepant documents and waiver

 (a) When a confirming bank, if any, or the issuing bank determines that a presentation
does not comply it may refuse to honor.
(b) When an issuing bank determines that a presentation does not comply, it may in it
sole judgment approach the applicant for a waiver of the discrepancies.

11/10/2023 (Wednesday)

International standard banking practices-

- International standard banking practice for examination of banking practice under

documentary credit.
- UCP should be read in conjunction with this document.
- Purpose- To reduce rejection of documents on account of discrepancies.
- This document says that in case spelling or typo error with does not affect the
meaning of the word should not be considered as discrepancy.
- Where a document submitted under L/C and refers to INCO term without referring to
version, the version should be considered as the one referred in main contract.

 In case of discrepant document what may the bank do

1. Right to refuse document and reject payment.
2. Bank have option to seek waiver from the applicant.
3. Despite of inconsistent document, bank may also be under pressure to make payment
b/c beneficiary is asking for payment and issuing bank applicant is taking time to
examine document, in such situation bank may make payment but it makes payment
under reserve.

 Payment under reserve

Case: Banque De L’ ludochine v J. H. Rayner

- Concept of payment under reserve was explained by English court in this case.
- The court said, “The beneficiary would be bound to repay the money to the
confirming bank on demand if the issuing bank should reject the documents whether
on its own initiative or on the buyer’s instruction. I would regard this as binding
 agreement made b/w the confirming bank and the beneficiary by way of a
compromise to resolve the impasse created by the uncertainity of their respective
obligations and rights.

Bank Guarantee

- It is a contract of guarantee where bank acting as a surety.

Sec 126 of Indian Contract act – Contract of guarantee, surety, principal debtor and
creditor- A Contract of guarantee is a contract to perform a promise or discharge the liability
of 3rd person in case of his default. The person who gives the guarantee is called the surety.
The person in respect of whose default the guarantee is given is called the principal debtor
and the person to whom the guarantee is given is called the creditor.

- Who has a responsibility of establishing bank Guarantee? – It can either be buyer or

the seller. It depends upon the Guarantee which is sought to be secured.
a. If payment is sought to be secured is payment – Buyer has the responsibility-
Financial Bank Guarantee
b. If it is the performance of contractual obligation that is sought to be secured-
Seller- Performance bank Guarantee

13/10/2023 (Friday)

- Whether it is a financial bank Guarantee or performance bank guarantee, in case of

default by debtor, the bank will make the payment of the price specified in the bank
guarantee.
- A bank Guarantee in addition to FBG and PBG can also be Unconditional BG aka on
Demand bank Guarantee or Conditional BG.
- Whether BG is conditional or unconditional can be understood by looking at the BG.
- If the terms and conditions of the BG are met, the bank is under an absolute
obligation to make payment.

Case: Delkon India Pvt Ltd v Bharat Heavy Electrical Ltd, 1991 Del HC

- NTPC has given a contract BHEL. A part of that contract BHEL subcontracted to
Delkon. The contract b/w Delkon and BHEL required Delkon to give a BG for
 performance of Contract. Delkon procured BG from SBI in favor of BHEL. After the
BG was established BHEL terminated its contract with Delkon by the reason of slow
performance and claiming the Default on the part of Delkon. BHEL seeking
invocation of BG from SBI. Delkon on the other hand initiate arbitration proceedings
in the underlying sales contract and ask for restraint on the part of Bank from making
payment. Since once the bank makes payment it steps into the shoes of creditor.
Delkon asserts fraud on the part of BHEL. B/c BHEL always wanted to subcontract
to Taxel engineers but they were the second lowest bidder.
- Delkon argument
a. Fraud on the part of BHEL.
b. Nature of default was not mentioned while invoking the BG.
c. Let the dispute be deicide by the arbitrator.

- Delhi HC- Mere allegation of fraud will not suffice. Delkon was not able to establish
the fraud. It failed to make out prima facie case of fraud. Bank was willing to make
payment, it implies that whatever the conditions were, they were met by the creditor.
So far as the BG is concerned, it is with respect to document and they are not
supposed to take the role of arbitrator.
- The Court Said: “It is well settled that a BG is a distinct and a independent contract
b/w the bank and beneficiary creating certain obligations and commitments b/w the
two. It is also settled that this independent contract cannot be affected by the dispute
b/w the parties to the underlying transaction. Such an inquiry is not within the
domain of the contract b/w the bank and the beneficiary. The bank cannot adopt the
role of an arbitrator. Therefore, the court should be slow in granting an injunction to
restrain the realization of BG and it is only in exceptional cases like (1) In case of
fraud in the underlying transaction; (2) Allowing encashment would result in
irreparable harm to one of the parties concerned that the encashment of BG may be
intervened.”
- What Constitute irreparable harm?
- Similarties b/w L/C and B/G
a. Both are instrument of trade finance and involves bank.
b. They mitigate the risks involved in international business transaction.
c. Autonomy principle
 - Differences b/w L/C and BG
1. Transaction
a. L/C- Bank promises to pay if transaction proceeds as planned.
b. B/G- Bank promises to pay if the transaction does not proceeds as planned.

2. Primary liability v Secondary liability

a. L/C- Bank has primary Liability
b. BG- Bank has secondary liability. Only in the case of default on the part of
principle debtor the bank steps in.

16/10/2023 (Monday)

 If there is Irreparable harm, court may interject and give an injunction on Bank
Guarantee.
 But what constitute irreparable harm?

Case: Itek Corporation v First national Bank of Boston & Ors, 566 F Supp 1210 (1983)

- A contract was entered into plaintiff (IteK, American Corp) with the Govt of Iran and
has to provide the Govt certain units of optical instruments. One of the conditions
was that Itek has to secure BG (Performance BG). Accordingly, this BG is provided
by Bank Melli (Surety), bank of the Government of Iran (Ex. of a Foreign BG). In
addition, as a condition to give that BG, Bank Melli further require Itek to procure
standby LoC issued by American Bank in favor of bank Melli. FNBB issued LoC in
favor of Bank Melli. The contract also allows for force majeure by either of the
parties. Situation turned in Iran. Certain American citizens kept hostages in Iran. US
Govt blocked all transfers form US to Iran. Eventually the hostages were released.
After that one exception was drawn out, it allowed transfer of funds from US bank
through and L/C to Iran. The present action was brought by Itek Restraining FNBB
from making payment to Bank Melli. B/c if the injunction isn’t granted it will result
in irreparable harm to the Itek.
 - US Court held- “The question whether the P is likely to suffer irreparable harm may
be understood in terms of whether the P has available a legal remedy adequate to
compensate it for its injuries. The Contract expressly provides that all disputes b/w
the parties related to the contract shall be settled by competent Iranian Court. I take
judicial notice of the fact that conditions in Iran have changed radically since that
time. The present domestic situation there has rendered access to Iranian Courts
futile. Itek had demonstrated that it has no adequate remedy at law and therefore I’m
satisfied that Itek will suffer irreparable harm if the requested relief is not granted.”

- Standby LoC- Indira Carr in a book International Business transaction explains -

LoC imposes performance for payment criteria on the seller. The beneficiary has to
perform by submitting the required documents to the bank in order to get paid.
Standby LoC serves as a secondary payment mechanism. The trigger for payment in
a standby LoC is default on the part of applicant which then permits the beneficiary
to draw upon the standby LoC. The standby LoC is used as payment of last resort
should the applicant fail in fulfilling their obligation. Since default is a trigger for
payment and not performance, a Standby L/C is often known as non-performance
L/C.

17/10/2023 (Tuesday)

Dispute Resolution

 How should the dispute be resolved?

- Litigation, ADR
- This must be incorporated in the contract.

 Where should the dispute be resolved?

- Seat/Place of arbitration.
- Seat v Venue
- United Nations Convention on the recognition and enforcement of the foreign arbitral
award (New York Convention)
  As per what rules the dispute be resolved?
- Arbitration can either be institutional or ad hoc arbitration.
- Law Governing the arbitration agreement.

18/10/2023 (Wednesday)

Dispute Resolution

How should the dispute be resolved?

- Fundamental difference b/w Litigation and Arbitration? – Arbitration can take

place only with the consent of parties, there has to be an agreement. In Litigation, to
initiate legal proceedings, no consent is required.
- ADR- Mediation(M), conciliation(C), Arbitration(A). It involves a third neutral party
to resolve the dispute.
- Indian Courts in number of decisions have said that M and C is same. However, there
is thin difference b/w them.
- Difference b/w A and M&C- In case of A, the award is final and binding on parties.
In case of M&C, even if parties have agreed to resolve the dispute by M&C parties
cannot be compelled to come to a solution, the process break down when one of the
parties withdraws its support.
- There are authors who said that M&C should be put in one category and Litigation
and A is another. The reason they said so is the length and cost associated with
litigation and A proceedings. ADR proceedings (M&C) are not designed to result in a
binding determination of the rights and obligations of the parties. M&C are not self-
contained processes which means although parties agreed to M&C, if the process
break down….

 Arbitration
- The Arbitration has been explained by Nicholos …. in his book International
Commercial Arbitration- “Arbitration may broadly be described as a private process
that commences with agreement of the parties to an existing or potential dispute to
submit that dispute for the decision by one or more arbitrators. The tribunal is
chosen by the parties who may establish the procedure to be adopted by the tribunal.
The decision of tribunal known as Award is final and binding on parties.”
 - Parties may Establish – B/c it will depend upon the type of arbitration: Institutional
or Ad hoc-
- Institutional Arbitration-Parties subject themselves to arbitration institution. They
have some standard clause, which parties need to incorporate in their contract.
International Chamber for commerce (ICC)
- Ad Hoc- Parties may agree to frame their own rules.
- Arbitration and conciliation act, 1996- Sec 2(1)(a)- Defines the term Arbitration-
“Arbitration means any arbitration whether or not administered by a permanent
arbitral institution.”
- Sec 2(1)(f)- International Commercial Arbitration-“International Commercial
Arbitration means an Arb relating to disputes arising out of legal relationships
considered as commercial under the law enforce in India and where at least one of
the parties is (i) and Individual who is a national of or resident in any country other
that India; or (ii) a body corporate which is incorporated in any country other that
India; or (iii) An association whose management and control is exercised in any
country other than India; or (iv) The Government of Foreign country.”
- Indian A&C act is based on UCITRAL Model law on International Commercial
Arbitration.
- What constitutes commercial? – The UCITRAL model law on International
commercial Arbitration – “The term Commercial should be given…

Complementary dispute Resolution

- A process where parties agree to mediation as a precondition to other self-contained

process (Litigation or arbitration).

Enforceability of Complementary dispute resolution clause

 Case:
- In this case the dispute resolution clause provided for mediation as a precondition of
litigation. When a dispute arose b/w parties IBM Started litigation without resorting
to mediation.
- The court said- “What the parties are agreeing to is not what the outcome of
mediation will be but rather that they will engage in a process which may or may not
bring about a resolution to their differences. These include at a minimum cooperation
 in the appointment of a mediator, submission of the documents to a mediator and
attendance at the mediation. An agreement to participate in the mediation was valid
at least to the extent that the party in question could be required to attend the
mediation even if the party withdrew thereafter.”

20/10/2023 (Friday)

27/10/2023 (Friday)

Institutional Arbitration

- Institution rules specify number of arbitrators, place of arbitration, but this is only in
default but first rules give parties an option to choose for themselves. Most
institutional rules give enough flexibility to the parties.
- LCIA (London Court of International arbitration) rules Art 5 – The expression the
arbitral tribunal include a sole arbitrator or all the arbitrators where there are more
than one. A sole arbitrator shall be appointed unless the parties have agreed otherwise
in writing.
- Art 16 of LCIA- (1) the parties may agree in writing the seat of arbitration at any
time before the formation of arbitral tribunal and after such formation with a prior
consent of the arbitral tribunal. (2) In default of any such agreement, the seat of
arbitration shall be London.
- Requires less efforts on the end of parties. Since institution rules provide of a
framework and incorporate all situations which may arise. They also have their panel
of arbitrators and parties can choose from them.

Ad Hoc

- Gives parties enough flexibility. B/c of that it is often said that an Ad-hoc arbitration
is better suited for an existing dispute. Since parties know what the dispute is, what
its nature is. As per the nature of dispute they can choose the number of arbitrators
they want.
- Less costly than institutional. Institutions are service providers, they will charge for
the service they will provide.
 Some of the factors which must be kept in mind by the parties
1. Number of arbitrators- Usually it is said that a simple dispute to be submitted to
the decision of sole arbitrator and a complex dispute to be submitted to a panel of
3 arbitrators. 3 members tribunal can give representation to all the parties but at
the same time it will be more expensive and getting 3 arbitrators can be a
daunting task. It will depend upon the consensus of the parties. Issue of biasness
can arise. Biasness is also a ground to refuse the enforcement of arbitral award.

2. Qualification of arbitrators- If parties are aware that the dispute is of technical

nature or the contract involves technicalities, they can choose the arbitrator who
has that particular technical knowledge.

3. Language of arbitration- Ex. Till recently China requires that Arbitration

conducted in China should be in Mandarin, now it has done away with this
requirement,

4. Place of arbitration- aka seat of arbitration. Arbitration is not conducted in legal

vacuum. Parties may need assistance of court while arbitration proceedings are
conducted. Ex. for purposes of production of documents, attendance of witnesses,
for preservation of documents. Which court?- Court of seat of arbitration.
Therefore, parties must choose a seat of arbitration whose court will act upon on
the request of parties for assistance and would not unnecessarily interfere with the
proceedings of arbitration.
Also, imp for enforcement of arbitral award.
 United Nations Convention on the recognition and enforcement of Foreign
arbitral award (New York Convention)
- Art 1.3- When signing or ratifying this convention any state may on the basis of
reciprocity declare that it will apply the convention to the recognition and
enforcement of awards made only in the territory of another contracting state.

Ex.- A and B are parties from country X and Y respectively and chosen seat of
arbitration country Z and award has to be enforced in Country O, since the losing
 party has its assets in Country O. Thus, for the enforcement country Z and O should
be part of New York convention.
- When it can be said that the award has been made?
- Where is the award is said to have been made?
- Seat v Venue?
- Venue is a geographical location which parties may chose for convenience. But
choosing a different venue does not change the seat of arbitration.

Case: Hiscox v Outhwaite, (1991) W.L.R 545

- English court interpreting award made said- “An Award no doubt the final
culmination of a continuing process is not in itself is a continuing process. It is
simply a written instrument and I can see no context for departing from what is the
ordinary construction of the word made. A document is made when and where it is
perfected and award is perfected when it is signed.”

** This implies that parties would never know what is the seat of arbitration and party
autonomy in the conduct of arbitration will be affected.

This case resulted in amendment to the English arbitration agreement.

Case: Bharat Aluminum Co v Kaiser Aluminum Technical services, (2012) 9 SCC 105

- SC has drawn a distinction b/w seat and venue.

- “There is only one place of arbitration, this will be chosen by or on behalf of the
parties and it will be designated in the arbitration agreement as the place or seat of
arbitration. This does not however mean that the arbitral tribunal must hold all its
meetings at the place of the arbitration. International arbitration often involves people
of different nationalities. In these circumstances it is by no means unusual for an
arbitral tribunal to hold meetings or even hearings at a place other than the designated
place of arbitration either for its own convenience or for the convenience of the
parties. In such circumstances each move of the arbitral tribunal does not mean that
the seat of arbitration changes.”
30/10/2023 (Monday)

 Doctrine of separability
- Every Jurisdiction recognizes the DoS in the conduct of arbitration.
- DoS- It says that an arbitration clause/Dispute resolution clause even if a part of main
sales contract is separate/Independent from the underlying main sales contract in
which it is incorporated.
- Purpose- A claim challenging the validity of main sales contract will not invalidate
the arbitration clause.
- Consequences of DoS- Gary Born in his book the International arbitration
recognized 4 consequences
a. Invalidity of the underlying contract does not invalidate the arbitration
agreement.
b. Invalidity of the arbitration agreement does not affect the validity of the
underlying contract.
- Ex. party may be challenging that whether this particular dispute has been submitted
to arbitration by the parties; composition of arbitrators; arbitration entered by
coercion; Subject matter arbitrability (Whether that particular issue can be settled by
way of arbitration, since arbitration is a private process and all disputes are not
capable of being settled by way of arbitration. There are also issues wrt particular
dispute amenable to arbitration in one jurisdiction and not in another jurisdiction.).
- Who can decide upon whether the arbitration agreement is valid or not if the party
raises the question on the validity of agreement?
- Even if the forum under above question is determine, which law will be applicable to
decide the validity?

c. Law governing the arbitration agreement may be different from the law
governing the underlying contract.
d. Separability doctrine presumes the arbitrator’s power to decide his or her own
jurisdiction.
** Competence-Competence principle- comes from German term- Kompetenz-
Kompetenz- Competence to decide its own competence.
 - Purpose of this principle- To the extent possible avoid the interference of national
courts. Parties can easily delay the proceedings by approaching the national court
which will in a way will defeat the purpose of arbitration.

Case: Impex v P.A.Z

- Court- The principle is that the judge hearing a dispute has the jurisdiction to
determine his own jurisdiction. This necessarily implies that when that judge is an
arbitrator whose powers are derived from the agreement of the parties, he has the
jurisdiction to examine the existence and validity of such agreement.

- This principle of competence-competence and separability also incorporated in

Arbitration and conciliation act, 1996- sec 16

Sec 16- Competence of arbitral tribunal to rule on its jurisdiction.

(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections
with respect to the existence or validity of the arbitration agreement, and for that purpose,—

(a) an arbitration clause which forms part of a contract shall be treated as an agreement
independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.

 Case: National agricultural cooperative society v Gains trading Ltd, 2007, SC

- Held: Even if performance of contract comes to an end on account of breach of
contract, the arbitration agreement would survive for the purpose of resolution of
disputes arising under such contract. This position is now statutorily recognized. Sec
16(1) of act makes it clear that while considering any objection with respect to the
existence or validity of the arbitration agreement, an arbitration clause which forms a
part of the contract has to be treated as an agreement independent of the other terms
of the contract.
- By application of doctrine of separability law governing arbitration agreement need
not be same as the law governing the main sales contract (Proper law of contract).
-

5. Applicable law of arbitration/ Law governing the arbitration agreement-

-