QUERY

One of our member-banks has raised an issue about a letter of credit and we would appreciate the ICC’s opinion on whether it is international banking practice for an issuing bank to honour a complying presentation and reimburse the negotiating bank only on the 10th banking day after receipt of the complying documents.

The LC was advised by our member-bank (the “advising bank”) to the beneficiary. It was available with the advising bank by sight payment. In field 78, the instructions to the paying/accepting/ negotiating bank stated, “UPON RECEIPT OF YOUR AUTHENTICATED SWIFT MESSAGE CERTIFYING THAT YOU HAVE HONORED AND ARE SENDING BY COURIER SERVICE STRICTLY COMPLYING DOCUMENTS TO OUR BANK, WE HEREBY UNDERTAKE TO EFFECT PAYMENT VALUE 03 (THREE) USA/SWISS BANK WORKING DAYS AFTER RECEIPT OF YOUR CLAIM. ………”

The LC was subsequently amended to make it available with the advising bank by negotiation. Field 78 was also amended to read as “UPON RECEIPT OF CREDIT COMPLYING DOCUMENTS AT OUR ABOVE ADDRESS, WE WILL COVER YOU ACCORDING TO YOUR INSTRUCTIONS, VALUE 5 NEW YORK/GENEVA BANK BUSINESS DAYS.”

As a nominated negotiating bank, the advising bank (hereinafter the “negotiating bank”) negotiated upon the request of the beneficiary and forwarded the complying documents to the issuing bank on 25 September 2019. Receipt of the documents were duly acknowledged by a staff of the issuing bank on 27 September 2019 at 9.18am (Geneva time). The negotiating bank received an advice of reimbursement or payment from the issuing bank, by MT756, dated 3 October 2019 indicating that the amount would be reimbursed or paid on 10 October 2019.

The negotiating bank did not agree with the value date as the reimbursement, as stated in the amendment, was to be made within 5 New York/Geneva bank business days, i.e., 4 October 2019. It expressed its disagreement and requested payment to be effected on 4 October 2019.

The issuing bank replied that the payment was effected in accordance with field 78 of the LC, i.e., 5 New York/Geneva bank business days after having determined that the documents presented were complying. The negotiating bank replied and disagreed with the issuing bank and requested payment to be effected on 4 October 2019 or payment with interest from 4 October 2019 to 10 October 2019. The issuing bank refused and subsequently closed the file.

We would appreciate it if ICC could provide its opinion on the following issues:

  1. As the LC indicated “UPON RECEIPT OF CREDIT COMPLYING DOCUMENTS AT OUR ABOVE ADDRESS, WE WILL COVER YOU ACCORDING TO YOUR INSTRUCTIONS, VALUE 5 NEW YORK/GENEVA BANK BUSINESS DAYS”, is the issuing bank right to effect payment on 10 October 2019 instead of 4 October 2019 as it had received the documents on 27 September 2019?

  1. Is the issuing bank right to claim that the value date should start from the date that it has determined compliance of the documents and not the date that it received the documents which was clearly stated in the LC?

ANALYSIS

It should be noted that the beneficiary could have rejected the amendment and, as a result, the original form of availability (by sight payment) and reimbursement condition (three USA/Swiss Banking days after the date the issuing bank received the SWIFT claim) would have prevailed. For this form of reimbursement, the issuing bank would have been required to honour against the receipt of the SWIFT claim if it had not had an opportunity to complete the examination of the documents by the value date requested.

The amended credit was available by negotiation and provided for payment to be made five New York/Geneva bank business days after the issuing bank’s receipt of credit complying documents. Documents were received by the issuing bank on 27 September 2019.

The pertinent sub-articles of UCP 600 are as follows:

  • sub-article 14 (b) which contains: “A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of five banking days following the day of presentation to determine if a presentation is complying.”, and,
  • sub-article 15 (a) which states: “When an issuing bank determines that a presentation is complying, it must honour.”

For this credit, five banking days following the day of presentation was 4 October 2019, which equates to the latest day on which the issuing bank could decide to refuse the documents, without risking preclusion under sub-article 16 (f).

As stated in the query, the issuing bank provided an MT756 message on 3 October 2019, which is prior to the fifth banking day following the day of presentation. Settlement was effected value 10 October 2019, which is in line with the five banking day reimbursement clause in the credit i.e., 5 New York/Geneva business days after documents have been found to be complying. The counting of the number of days starts after documents have been found to be complying by the issuing bank

The amended condition for field 78 cannot be interpreted that it means that the issuing bank must arrange settlement on the day it receives the documents and based solely on the nominated bank’s opinion that the documents comply. UCP 600 sub-article 14 (b) clearly indicates that each of the banks has a maximum of five banking days following the date of presentation in which to determine whether the documents comply. The fact that an issuing bank undertakes to reimburse a nominated bank ‘upon receipt of credit complying documents’ does not absolve the issuing bank from its duty to examine documents as provided for in UCP 600 sub-article articles 7 (a), sub-article 14 (b), and sub-article 15 (a).

CONCLUSION


  1. In effecting reimbursement on 10 October 2019, the issuing bank acted in accordance with the reimbursement condition in the credit and UCP 600.
  2. The issuing bank is correct that the value date should be calculated from the date that it determined compliance of the documents.