ABSTRACT
An irrevocable letter of credit is one that cannot be amended or cancelled without the prior consent of both parties involved, that is, the buyer and the seller. This type of letter of credit guarantees payment by the bank to the seller provided the seller complies with all stipulated conditions. According to Justice Sellers in Newman Industries Ltd v Indo-British Industries, Ltd, ‘Under a letter of credit the bank itself actually undertakes to pay against documents which are to be presented to it. If it is an irrevocable confirmed letter of credit it creates a direct relationship between the bank and the seller and the bank becomes directly liable to the seller for the fulfilment of the obligations which it has undertaken in the letter of credit.’43 Because of the assurance of payment, this type of credit is most widely used in international trade. The added security of such an arrangement causes this type of credit to be much more expensive. In Bolivinter Oil S.A. Sir John Donaldson stated, ‘The unique value of such a letter … is that the beneficiary can be completely satisfied that whatever disputes may thereafter arise between him and the bank’s customer in relation to the performance or indeed existence of the underlying contract, the bank is personally undertaking to pay him provided that the specified conditions are met.’44
