The Seller’s Right to Avoid the Contract If the Letter of Credit Is Not In Conformity With the Sales Contract? : A study on the remedy of avoidance in a complex environment

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http://urn.fi/URN:NBN:fi:hulib-201511113778
Title: The Seller’s Right to Avoid the Contract If the Letter of Credit Is Not In Conformity With the Sales Contract? : A study on the remedy of avoidance in a complex environment
Author: Pekkinen, Sampsa
Other contributor: Helsingin yliopisto, Oikeustieteellinen tiedekunta
University of Helsinki, Faculty of Law
Helsingfors universitet, Juridiska fakulteten
Publisher: Helsingfors universitet
Date: 2015
Language: eng
URI: http://urn.fi/URN:NBN:fi:hulib-201511113778
http://hdl.handle.net/10138/158150
Thesis level: master's thesis
Discipline: Velvoiteoikeus
Obligation law
Obligationsrätt
Abstract: This thesis deals with the remedy of avoidance under the United Nations Convention on Contracts for the International Sale of Goods (CISG) in transactions where the parties have agreed on the payments to be made by a letters of credit. The approach of the thesis is to evaluate whether the seller is entitled to the remedy of avoidance in a case where the buyer fails to open a letter of credit in accordance with the underlying contract of sale. The context of the study is the complex international environment. A letter of credit is a typical payment instrument in international trade. The use of letters of credit is based on the need for security. They are usually resorted to in situations where there are doubts regarding the other party’s financial history, assets, or creditworthiness. Disputes involving letters of credit take place in the contractual network involving banks. The present thesis studies how the right to avoid the contract is affected by the said arrangement and the commercial purpose of a letter of credit. The legal framework is built around the CISG and the Uniform Customs and Practice for Documentary Credits (UCP 600). In addition, a brief analysis of the matter from the perspective of the Finnish Sale of Goods Act is included. The concept of a non-conforming letter of credit is evaluated mostly through case law. The Principles of International Commercial Contracts by the International Institute for the Unification of Private Law (PICC), the Principles of European Contract Law (PECL) and the opinions of the International Chamber of Commerce’s Banking Commission are being used as supplementary legal sources in the interpretation of the provisions of the CISG. In addition, six Finnish experts on letters of credit were interviewed to gain a closer understanding of the prevailing practices within the industry. The structure of the present thesis is divided into four parts. Parts I and II, constituting a fairly large proportion of the thesis, deal with describing of the usages and mechanisms related to letters of credit and the commercial purpose of letters of credit. This is justified with the necessity of understanding the particular features of the industry in order to be able to evaluate the fulfilment of a fundamental breach in the given context. This necessity is highlighted in a complex business environment. Part III evaluates the threshold of what constitutes a fundamental from the perspective of the buyer’s failure to open a letter of credit in accordance with the contract. Part III is divided into chapters, each discussing different ways of constituting grounds for a fundamental breach. Part IV concludes with the key elements and findings regarding the fundamental breach and the right to avoid the contract.


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