Parties to the query

Claimant: Beneficiary

Respondent: Issuing Bank

Detailed description

The Claimant was the beneficiary of a standby credit issued by the Respondent subject to the ISP98. The credit was available with the Respondent by payment at sight, with the demand for payment to comprise a draft drawn at sight accompanied by a written statement from the beneficiary.

A demand was made by the Claimant, including a draft and the beneficiary's written statement.

A number of days later, the Respondent rejected the presentation claiming “SBLC overdrawn”.

Pursuant to an extensive exchange of communications between the Respondent and the Claimant, the Respondent requested the Claimant to represent the draft and written statement.

The Claimant complied accordingly, and the Respondent then again rejected the presentation, this time stating that the standby credit had expired.

It was queried, amongst other questions, whether the notice of refusal from the Respondent for the initial presentation was sent to the Claimant within a reasonable time.

Analysis

The ISP98 rule 2.01 states that an issuer undertakes to the beneficiary to honour a presentation that appears on its face to comply with the terms and conditions of the standby in accordance with these rules supplemented by standard standby practice.

The ISP98 rule 3.06 provides how a document must comply.

Although the initial presentation of draft and statement overdrew the credit, the Claimant tried to rectify this by sending a SWIFT message claiming a smaller amount within the value of the credit.

However, in view of the fact that the credit required a draft and written statement for the required drawing value, a SWIFT clarification was not sufficient to make the presentation compliant.

Any revised demand had to include a draft and the beneficiary’s written statement showing an amount equal to or within the available balance of the credit and presented on or before the expiry date.

The ISP98 rule 5.01 states the requirements for a notice of dishonour, including what is considered to be a timeframe that is reasonable or unreasonable.

In the circumstances of this presentation, bearing in mind the simple nature of the documents and the fact that the notice of refusal was sent on the fifth business day following presentation, the handling was considered as unreasonable.

Decision

It was agreed that, given the simple nature of the demand, a refusal sent on the 5th business day was not timely and was unreasonable.

As the Respondent did not provide a timely notice of dishonour it was obligated to pay the Claimant for the value available under the credit.