The bank's legal responsibility towards the customer issuing the documentary credit

Abstract

A letter of credit is one of the most important and sensitive banking transactions. The bank acts on behalf of the importer (the ordering client) in paying the value of the commercial transaction to the exporter (the beneficiary), in exchange for the exporter sending the documents included in the letter of credit. This creates liability for the bank as a result of fulfilling its obligations to the parties involved in the letter of credit agreement.

Due to the multiple and intertwined contracts involved in executing a letter of credit, from the underlying transaction agreement (the commercial sales contract) to the letter of credit itself in favor of the beneficiary, and the involvement of several banks in executing the letter of credit due to the different parties and the varying countries of the exporter and importer, the risks for banks in executing this process increase.

Therefore, the idea behind this study is to highlight the bank's legal responsibility towards the client. Due to the study's scope, it will be limited to examining and analyzing the bank's legal responsibility towards the client. Accordingly, the study is divided into two sections. The first section defines the legal nature of the bank's responsibility towards the client and is further divided into two subsections. The first subsection examines contractual liability as the basis for the bank's responsibility towards the client, while the second subsection examines tort liability as the basis for the bank's responsibility towards the client. The second section is dedicated to studying and discussing cases of exemption from liability for the bank. The first subsection outlines cases of legal exemption, while the second examines cases of contractual exemption. To achieve the study's objectives, we have adopted a descriptive analytical approach, supplemented by a comparative approach, by comparing Omani law with the Uniform Customs and Practice for Documentary Credits (UCP 600) issued by the International Chamber of Commerce in Paris. This leads to the desired results and recommendations of the study.