Some 50 to 75 cases involving letter of credit disputes are reported in the United States each year. The number of these disputes has increased, and may be expected to increase further, with the growing use of letters of credit for commercial, and particularly international, transactions. It is estimated that, in the United States letter of credit market, there is over $180 billion in credits outstanding, while worldwide there is over $500 billion outstanding.

Most disputes involving letters of credit can be, and many are, disposed of summarily because they involve merely a review of the letter of credit, the documents presented under the letter of credit, any notice of dishonor, and an analysis of the applicable law and practice. Because letter of credit law has been shaped to a great extent by parties in the banking industry, resulting in a law not wholly consistent with standard contract or other commercial law, there is a danger that parties and courts may seek to apply doctrines foreign to this area of the law.

It should not be surprising, then, that at least two organizations are currently working on the preparation of rules to facilitate alternative dispute resolution and arbitration of letter of credit disputes. Implementation of such arrangements would likely have the effect of facilitating the summary resolution of these disputes, with a saving of unnecessary expense in time and money for both banks and business users of letters of credit. This Chapter discusses a New York Court of Appeals case involving a typical letter of credit dispute and demonstrating the need for an efficient, non-judicial forum in which such disputes may be resolved.