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Courts have exhibited two ways of dealing with documentary compliance, namely (1) strict compliance with the letters of credit terms, and (2) substantial compliance which is determined based on (a) the intent of the parties as reflected in contracts other than the credit itself and (b) the fundamental fairness of the parties conduct.
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(b) Strict compliance rule
*
The common law position
Strict compliance requires that, first of all, all documents required by the letter of credit have to be tendered. Secondly, the documents must be of the exact type required by the credit. Thirdly, the description of the goods in the documents must be sufficient The strict compliance rule requires that the documents and their wording, descriptions and soon must strictly comply with what is stipulated in the letter of credit. When a beneficiary presents documents to the issuer and demands a payment of the credit, the issuer must examine the documents to determine whether they comply on their face with the requirements of the credit. If they do not comply, the issuer may dishonour the beneficiary’s draft, and the beneficiary cannot complain As one US. court has reportedly explained, compliance with the terms of the credit is not like pitching horseshoes. No points are awarded for being close 55
Ibid, at 6.02.
56
Ellinger, op. cit, at 280.
57
Ibid, at 385.
58
Ronner, op.cit., at 630-631.

The advantage of the strict compliance rule to the applicant is most obvious in letters of credit transactions because the primary concern of the applicant-buyer is that the seller has shipped what was bargained for before the buyer becomes obligated to pay.
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Rugg J. held in Moss v. Old Colony Trust Co. that If he the seller accepts it the letter of credit and acts under it, he is bound to conform to its requirements in every particular....There is no promise to pay unless drafts are in strict conformity to the authority conferred.”
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American practice is also inline with the strict compliance rule. If the bank accepts faulty documents from the seller, it does so at its own risk In Liberty National Bank & Trust Co. of Oklahoma vii Bank of America National Trust & Savings Association, it was held that the bank must scrutinise the documents with great care, checking that the documents, although complying with the terms of the letter of credit, do not contain any unusual features. Such features in a document, even if not sufficient for rejecting a tender, should serve as a red flag directing the bank to scrutinise carefully all accompanying documents for all clues which would aid the banks to determine whether the terms of the letter of credit had
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D. W. Lee, Letters of Credit What does Revised Article 5 have to Offer to Issuers, Applicants and Beneficiaries?”, Commercial Law Journal, v, 1996 (Fall, 234, at 247.
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(1923) 246 Mass. 139, 140 NE. 803, at 808.
61
Ellinger, op. cit, at 61.

been met.
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The duty to examine all documents is important because any discrepancies in the documents should debar the bank from claiming reimbursement from the applicant of any amount which has been paid against the documents. This is known as checking for ‘compliance’. It has thus become the general rule in the letter of credit transaction that the issuer or the confirming bank should not honour documents presented by a beneficiary unless the documents comply strictly with the terms and conditions of the letter of credit.

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