Parties to the query

Claimant: Issuing Bank, local Standby Credit

Respondent: Issuing Bank, counter Standby Credit

Detailed description

The Claimant issued a local standby credit based upon the instructions and language contained in a counter standby credit issued in their favour by the Respondent. Both credits were subject to the ISP98.

The Claimant made a claim against the Respondent’s counter standby. Accordingly, upon receipt of the complying demand, the Respondent became obligated to honour. However, the Respondent received a court order stopping 2/3 of the demand, subsequently notified the Claimant and paid the available 1/3 portion.

The Claimant paid the amount received to the beneficiary of their local standby. Once the court order was lifted, the Claimant contacted the Respondent for payment of the outstanding amount together with interest from date of original settlement to the date of payment of the outstanding amount. The Respondent declined, stating that their counter standby had expired.

The main issue was whether the Respondent was precluded from rejecting the presentation from the Claimant as they had failed to issue any notice of dishonour. It was also questioned as to whether the Respondent was obligated to honour the balance of a complying demand after the lifting of a court order which had stopped payment of part of the demand.

A question of applicable late payment interest was also raised.

Analysis

It was considered central to this dispute to acknowledge that the Respondent issued a counter standby credit in favour of the Claimant instructing the Claimant to issue their local standby credit in favour of a local beneficiary "under our (Respondent) full responsibility and against our counter standby letter of credit...".

The beneficiary of the Claimant's local standby credit lodged a complying demand which gave effect to the Claimant's demand on Respondent's counter standby credit.

In this case, the Claimant had demanded that good value be made by the payment of interest for withholding payment unjustifiably under the applicable ISP98 rules. The amount of interest to be paid is typically settled based on correspondent banking relationships or when agreement is unable to be reached, and settled by the other means such as arbitration or the courts.

The ISP98 rules 8.01, 8.02, and 8.03 cover the process for the right to reimbursement, charges for fees and cost, and any refund of reimbursement.

Decision

The Respondent honoured to the extent permitted by a court order but, under the ISP98 rule 2.01, remained obligated for the balance of the original complying demand upon the lifting of the court order.

Furthermore, the Respondent was in breach of the ISP98 rule 2.01 (b) by effecting a smaller amount rather than the sum demanded.

The matter of the court order was seen as a matter of law, outside the remit of DOCDEX.

Whilst the Respondent was responsible for late payment interest, the ISP98 does not directly cover the payment of interest. It does, however, cover the opposite situation in rule 8.03, and it follows that this situation should follow the same logic.

A bank which has delayed payment was also bound to make payment with good value to the business day following the release of the court order.