LC Beneficiaries Beware: Failing to Comply Strictly with Documentary Requirements May Leave You Empty Handed

Letters of credit are an important risk mitigation tool for trade creditors seeking to ensure payment for the goods or services they sell to their customers. A letter of credit (LC) issuing bank must pay the LC beneficiary (creditor) if or when the beneficiary presents all of the documents required for payment under the LC.

One of the central tenets of LC law is the doctrine of strict compliance. A beneficiary seeking payment of an LC must strictly comply with all of the LC’s documentary requirements. As illustrated by the recent decision of the U.S. District Court for the Eastern District of New York (District Court), in MAM Apparel & Textiles Ltd. v. NCL Worldwide Logistics USA, Inc. (MAM Apparel), an LC beneficiary that fails to present all of the documents required by an LC risks nonpayment of its LC draw. Bottom line: The strict compliance requirement regarding a beneficiary’s presentment of documents to an issuing bank for review and payment of an LC draw should not be taken lightly.