QUERY

Since the introduction of UCP 600, we continue to receive letters of credit that attempt to modify sub-article 16 (c) (iii) (b). The following are actual examples of the phrases that we see, all received from different banks, in different country locations:

1. IF DOCUMENTS PRESENTED UNDER THIS L/C ARE FOUND TO BE DISCREPANT AND WE HAVE NOT RECEIVED PRESENTER'S DISPOSAL INSTRUCTIONS FOR THE DISCREPANT DOCUMENTS PRIOR TO RECEIPT OF THE APPLICANT'S WAIVER OF DISCREPANCIES, WE SHALL RELEASE THE DOCUMENTS TO THE

APPLICANT WITHOUT NOTICE TO THE PRESENTER AND WE WILL HAVE NO LIABILITY TO THE PRESENTER IN RESPECT OF ANY SUCH RELEASE. [Emphasis added]

2. IN ACCORDANCE WITH THE PROVISIONS OF ARTICLE 16 C III B OF UCP 600, IF WE GIVE NOTICE OF REFUSAL OF DOCUMENTS PRESENTED UNDER THIS CREDIT WE SHALL HOWEVER RETAIN THE RIGHT TO ACCEPT A WAIVER OF DISCREPANCIES FROM THE APPLICANT AND, SUBJECT TO SUCH WAIVER BEING ACCEPTABLE TO US, TO RELEASE DOCUMENTS AGAINST THAT WAIVER WITHOUT REFERENCE TO THE PRESENTER PROVIDED THAT NO WRITTEN INSTRUCTIONS TO THE CONTRARY HAVE BEEN RECEIVED BY US FROM THE PRESENTER BEFORE THE RELEASE OF THE DOCUMENTS. ANY SUCH RELEASE PRIOR TO RECEIPT OF CONTRARY INSTRUCTIONS SHALL NOT CONSTITUTE A FAILURE ON OUR PART TO HOLD THE DOCUMENTS AT THE PRESENTER'S RISK AND DISPOSAL, AND WE WILL HAVE NO LIABILITY TO THE PRESENTER IN RESPECT OF ANY SUCH RELEASE. [Emphasis added]

3. NOTWITHSTANDING THE PROVISIONS OF ART 16.c.iii b - UCP 600, WE SHALL RELEASE DOCUMENTS AGAINST THE WAIVER WITHOUT

REFERENCE TO THE PRESENTER PROVIDED THAT NO WRITTEN

INSTRUCTIONS TO THE CONTRARY HAVE BEEN RECEIVED BY US

FROM THE PRESENTER BEFORE THE RELEASE OF THE DOCUMENTS. ANY SUCH RELEASE PRIOR TO RECEIPT OF CONTRARY INSTRUCTIONS SHALL NOT CONSTITUTE A FAILURE ON OUR PART TO HOLD THE DOCUMENTS AT THE PRESENTER'S RISK AND DISPOSAL, AND WE WILL HAVE NO LIABILITY TO THE PRESENTER IN RESPECT OF ANY SUCH RELEASE. [Emphasis added]

4. IF DOCUMENTS PRESENTED UNDER THIS L/C ARE FOUND TO BE DISCREPANT, WE SHALL GIVE ITS NOTICE OF REFUSAL AND SHALL HOLD DOCUMENTS AT YOUR DISPOSAL SUBJECT TO THE FOLLOWING CONDITION: 'IF WE HAVE NOT RECEIVED YOUR DISPOSAL INSTRUCTIONS FOR THE DISCREPANT DOCUMENTS PRIOR TO RECEIPT OF THE APPLICANT'S WAIVER OF DISCREPANCIES, WE SHALL RELEASE THE DOCUMENTS TO THE APPLICANT WITHOUT NOTICE TO YOU.' [Emphasis added]

These conditions are often ambiguous and add no clarity to UCP 600 sub-article 16 (c) (iii) (b). If anything, they cause unnecessary confusion, requests for amendments and possible concerns relative to whether they are attempting to change the intent of this sub-article.

The result of this sub-article is clearly alluding that should an issuing bank agree to waive the discrepancies and release the presentation to the applicant, either in conjunction with the applicant’s waiver or on its own determination, the issuing bank must honour the presentation.

Our questions:

1. Regarding the above and similar clauses to the above:

  1. Is our understanding correct that once an issuing bank agrees to accept or otherwise waive discrepancies, it must honour?
  2. Is our understanding correct that if an issuing bank releases a presentation to anyone other than the presenter without their consent then the issuing bank must honour?

2. Is it standard banking practice to disregard these types of clauses understanding that requests for amendments are often met with silence?

ANALYSIS

When an issuing bank refuses documents, and according to UCP 600 sub-article 16 (b), decides to approach the applicant for a waiver of discrepancies, UCP 600 sub-article 16 (c) (iii) (b) requires that its notice of refusal must state that it “is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver, or”

By subsequently agreeing to accept a waiver of the applicant, the issuing bank will no longer be in a position to refuse to honour the presentation. Provided the acceptance of the waiver is made prior to any further instructions being received from the presenter, for example, instructions that convey a different course of action to be taken than the honour of the presentation, the issuing bank must proceed to honour the presentation, as outlined in UCP 600 sub-article 15 (a), and it may then release the documents to the applicant, or in a manner as so directed by the applicant.

There appears to be no inference in any of the clauses that the respective issuing bank will not act according to the requirements of UCP 600 sub-articles 16 (c) and (d), thereby risking preclusion under UCP 600 sub-article 16 (f) for any failure to do so.

However, the issuer of each of the referenced clauses appear to be under the impression, albeit incorrectly, that if they accept a waiver, honour the presentation, and then release the documents to the applicant or as so directed by the applicant, they incur some form of liability for not obtaining the presenter’s prior agreement for the release of those documents. These types of clauses were seen in credits made subject to UCP 500 due to UCP 500 not having a comparative rule for UCP 600 sub-article 16 (c) (iii) (b). It has been apparent that some banks have continued to use the same kind of clauses, modified for reference to UCP 600, without identifying that the structure of UCP 600 does not require their continued use.

These clauses are not implying that the documents will be released to anyone other than the presenter without honour. However, for the sake of clarity, to release the documents would require the issuing bank to honour.

The position under UCP 600 article 16 is that if an issuing bank accepts a waiver given by the applicant, prior to the receipt of any instructions from the presenter, as to the further handling of the documents, it is required to effect honour and may then release those documents without seeking any prior consent of the presenter.

These types of clauses are unnecessary and should not be incorporated into a credit.

CONCLUSION

1(a). Correct. When an issuing bank agrees to accept the applicant’s waiver, it must honour.

1(b). Correct, as outlined in the analysis above.

2. Disregarding any clause in a credit cannot be considered as standard banking practice, except as provided for in UCP 600 and ISBP 745. As indicated in the Analysis, these clauses are unnecessary and can cause confusion as to their intent, and should not be incorporated into a credit.