An LC requests interest invoices and interest drafts for the usance period (180 Days) at libor plus .50 basis points,
The beneficiary submits the same but with the libor rate of interest being incorrect,
The issuing bank refused the documents stating that the interest calculation is incorrect and have returned the documents.
Is the reason valid ground for refusal,
Pls comment.
Thanks
[edited 10/25/2008 2:53:24 PM]
Refusal of the basis of Interest Calculation.
Refusal of the basis of Interest Calculation.
On what basis is the LIBOR stated adjudged 'incorrect'?
Refusal of the basis of Interest Calculation.
Mr. Smith,
Beneficiary submitted documents with the interest invoice and interest drafts on 10th of Oct (For e.g) and the negotiating bank dispatched the documents to issuing bank on the 13 th of Oct, the benefiicary had mentioned the libor rate on the interest invoice as on 10th Oct, (assuming so)
Secondly, shall we refuse in line with Art 24 of ISBP stating banks are not obliged to check detail mathematical calculation.
Kindly comment.
Beneficiary submitted documents with the interest invoice and interest drafts on 10th of Oct (For e.g) and the negotiating bank dispatched the documents to issuing bank on the 13 th of Oct, the benefiicary had mentioned the libor rate on the interest invoice as on 10th Oct, (assuming so)
Secondly, shall we refuse in line with Art 24 of ISBP stating banks are not obliged to check detail mathematical calculation.
Kindly comment.
Refusal of the basis of Interest Calculation.
ATIFM,
I am still not clear as to the exact situation, so I will have to speculate.
If the issuing bank is saying that the LIBOR quoted is factually incorrect then, unless the credit expressly requires them (and the nominated bank) to verify this, they are not entitled I believe to raise this as a discrepancy. (One would also needs to define exactly what was meant by ‘LIBOR’ so all parties could verify it with confidence.)
If the issuing bank is saying that based on the rate and margin quoted in the invoice the beneficiary has miscalculated the interest then the validity of this discrepancy is less clear cut; it all depends on what meant by a ‘detailed mathematical calculation’.
Lastly, clearly it would be wholly unrealistic to require the invoice to purport to show the LIBOR for the date the documents are actually honoured / negotiated. Under UCP600 a bank is seemingly allowed 5 banking days to examine documents, in all circumstances, and therefore a beneficiary can never be in a position to be able to produce with certainty a document containing data relating to the date the documents are honoured / negotiated. Therefore, if for example the documents were presented on 10 Oct it would be absurd to think that the beneficiary could produce a document with data applicable to the 13 Oct, the date of honour / negotiation.
Regards
[edited 10/28/2008 10:42:19 AM]
I am still not clear as to the exact situation, so I will have to speculate.
If the issuing bank is saying that the LIBOR quoted is factually incorrect then, unless the credit expressly requires them (and the nominated bank) to verify this, they are not entitled I believe to raise this as a discrepancy. (One would also needs to define exactly what was meant by ‘LIBOR’ so all parties could verify it with confidence.)
If the issuing bank is saying that based on the rate and margin quoted in the invoice the beneficiary has miscalculated the interest then the validity of this discrepancy is less clear cut; it all depends on what meant by a ‘detailed mathematical calculation’.
Lastly, clearly it would be wholly unrealistic to require the invoice to purport to show the LIBOR for the date the documents are actually honoured / negotiated. Under UCP600 a bank is seemingly allowed 5 banking days to examine documents, in all circumstances, and therefore a beneficiary can never be in a position to be able to produce with certainty a document containing data relating to the date the documents are honoured / negotiated. Therefore, if for example the documents were presented on 10 Oct it would be absurd to think that the beneficiary could produce a document with data applicable to the 13 Oct, the date of honour / negotiation.
Regards
[edited 10/28/2008 10:42:19 AM]