Research and development in private law

Research and development in private law

Comparative Study of the Requirements for the Opening and Execution of Transferable and Back-to-Back Letters of Credit in the Uniform Customs and Practice for Documentary Credits and Iranian Law, and Proposing Solutions to Facilitate Their Use

Articles in Press

Document Type : Original Article

Authors
Rasool Bahrampoori 1
Samaneh Malaklou 2
1 Assistant Prof. Department of Private Law, Faculty of Law, University of Science and Culture, Tehran, Iran
2 MA. In Oil and Gas Law, Faculty of Law, University of Science and Culture, Tehran, Iran.
10.22034/jpl.2026.2085295.1297
Abstract
Back-to-back letters of credit and transferable letters of credit are among the payment and financing instruments used in international commercial contracts where the seller or service provider is not the main supplier of the goods or services under the underlying contract. Using these letters of credit, the seller or service provider makes payment to the main supplier of the goods or to subcontractors. Back-to-back and transferable letters of credit are subject to certain requirements that must be observed by the issuing bank, the beneficiary, and the applicant. Some of these requirements are derived from the Uniform Customs and Practice for Documentary Credits (UCP600) and are aligned with the international custom governing documentary credits, while others are specific to Iran’s legal system and are derived from the "Central Bank’s Foreign Exchange Regulations" and the "Executive By-Law on the Opening of Back-to-Back Letters of Credit." This article uses an analytical-descriptive method to examine the extent to which the requirements for opening and executing back-to-back and transferable letters of credit limit their efficiency for traders and explores solutions to facilitate and promote the use of these payment instruments. This article has also taken judicial opinions into account in its examination and it was found that observing certain points—such as not deeming it necessary for the applicant to assume liability in transferable letters of credit, not obliging the issuing bank to obtain additional collateral in back-to-back letters of credit, not limiting the amount of the back-to-back letter of credit to that of the primary letter of credit, and a broad interpretation by banks of the term "related" regarding the terms, goods, or services under the primary and back-to-back letters of credit—are among the measures that both safeguard the rights of the issuing bank and, in practice, facilitate and promote the use of back-to-back letters of credit.
Keywords
Principle of Strict Compliance
Financing
Beneficiary
Applicant
Issuing Bank
Subjects
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