Buyer

A satisfactory alternative and one widely utilised is for the Buyer to draw up and to issue a ‘documentary letter of credit’ through a bank of good repute, satisfactory to the Seller. A documentary letter of credit may be ‘revocable’ or ‘irrevocable’, although the former, being open to cancellation or amendment by a Buyer provides little security for a Seller and is therefore rarely utilised. Irrevocable letters of credit instead are commonly used and under the terms of such a document, the bank involved will undertake to pay the Sellers without fail (i.e. irrevocably) but only when appropriate pre-conditions have been met within the time stipulated, these pre-conditions and times being clearly specified in the letter and usually being scrupulously adhered to by the bank. Major preconditions specified in a ‘letter of credit’ naturally include some safeguard in respect of the condition of the goods received and, since it is impracticable for a bank to examine the goods themselves, bankers will often rely solely upon the description of the condition of the goods as provided in a ‘bill of lading’. If a Shipowner (or a Ship’s Master) confirms that cargo received aboard is in good condition at the port of loading, bills of lading will be issued containing no adverse remarks about the condition of the cargo – in other words ‘unqualified’ or ‘clean’ bills will be issued, and these are frequently a pre-requisite before a letter of credit can be honoured. Having issued ‘clean’ bills at a loading port, the Shipowner assumes responsibility for the carriage of the cargo and for its safe delivery into the custody of the eventual holder of the bill(s) of lading at the port of discharge, when the cargo should be in substantially the same condition as received on board.