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Enforcement of Penalty Clauses: A Civil-Common Law Comparison

seeks to secure the specific transaction through the goods and their related documents. In such a situation, the documentary credit’s function is not restricted to secure payment and fulfilment of the contract but serves also as a credit instrument. The legal difficulties of such a transaction arise from the fact that the bill of lading (B/L) is diverted from its intended use. The bill of lading was born to act as a receipt for goods shipped and later to evidence the contract of carriage itself. Furthermore, as document of title to the goods, it allows the transfer of property as well as the control of goods in transit, and permits delivery. In the context of a documentary credit, the B/L is used beyond its original and prime functions. It also serves in the context of the sales contract to imitate a goods-against-payment transaction (Zugum-Zug-Geschäft) and in the context of the bank-buyer relationship to function as a security. Not surprisingly, the parties’ interests do diverge and it is obvious that the B/L cannot satisfy all demands in equal measure. For the trade financing bank, problems arise when the buyer becomes insolvent, or, where a confirming bank is involved, the issuing bank becomes insolvent. Therefore, the security given by the B/L accepted under a documentary credit plays an important role. In the context of a documentary credit, the bank, as a rule, may acquire under Swiss law a possessory lien (Retentionsrecht) over the B/L and the goods represented by it. The bank may furthermore be entitled to fiduciary ownership (fiduziarisches Eigentum) over the B/L and the goods if the parties so agree. Unlike the Supreme Court of Switzerland, the author advances the view that the security granted by the fiduciary ownership over the B/L is not limited to the B/L, but also transmits fiduciary ownership over the goods represented by the B/L. In detail, the parties’ will and the specific circumstances of the case determine whether or not the bank is entitled to enforce a possessory lien or a fiduciary ownership over the B/L and the goods. An additional aspect further increasing the complexity of the issue is the internationality of the trading transactions in which documentary credits are used. This circumstance creates an additional difficulty to foresee the existence of a security right, as the requirements of a possessory lien or a fiduciary ownership may be governed by different laws which are not necessarily compatible. All this interferes in the final decision as to whether or not a bank has a security by holding a B/L.