We recently came across a case where a Taiwanese Bank rejected documents
just due to an alleged discrepancy e.g. beneficiary's town/state given in the
credit omitted an 'a'(e.g.Tawu) but both the Fields 44A(Port of loading) & 45A(Description
of goods) have clearly specified the correct town/state Tawau).Tawu is non-existent.
Upon presentation of docs by the bene, we have proceeded to negotiate the docs
as we do not regard the typo omission of an 'a' in the credit capable of
creating a discrepancy.
The issuing bank T took a full 7 banking days(from 22 Oct-30 Oct) to check & send a Swift message advising that
they are returning docs to us that very day just 'cos the bene's correct address has an extra
'a'. The docs called for under the credit are not complicated nor voluminous.Only 4 documents
are called for i.e invoices,packing list,BL & Bene's cert & each doc comprises one page only.
In their msg,T merely advised they noted the discrepancy that the bene's address differs fr the LC
& are returning docs to us. T did not specifically state thay reject docs.
We feel strongly that such an alleged discrepancy which does not adversely affect the goods themselves is used
to frustrate a trade transaction.
We are also of the opinion that T took an unreasonable time to revert possibly to delay until the latest shipment date.
I personally hold the belief that as a professional banker,despite the world economic slowdown, we have a responsibility
to uphold our integrity.After all, we banks issue LCs to facilitate & promote international trade, not manufacture discrepancies
to hinder trade.
T has also not given us the chance to explain or dispute their alleged discrepancy
I would like to hear your comments & whether there are any official opinions on these similar cases.
Lastly is it right for a bank to have such a policy where they take the full 7 banking days to revert & return docs at the same time?
We have reverted to expain that there is no such place such as Tawu. Besides their Fields 44A & 45A have correctly mentioned Tawau.
T's arrogant reply was that they do not know all the places in the world.
Perhaps your members can advise us as to how to handle these kind of unscrupulous bankers.
We have just heard the applicant is facing financial problems.
Thank you.
[edited 11/9/01 12:48:27 PM]
[edited 11/9/01 1:13:46 PM]
Unreasonable Issuing Bank
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cynthiawong
- Posts: 7
- Joined: Fri Apr 05, 2019 5:30 pm
Unreasonable Issuing Bank
My personal opinions, from a UK perspective and without responsibility/liability on my part, are:
1. Based on the facts as you have outlined them it would appear that the issuing bank has raised an ‘invalid’ discrepancy; the credit contained the spellings ‘Tawu’ & ‘Tawau’ and, more to the point, there is not any UCP500 requirement for the beneficiary’s address to appear in any document (and, if it does, the address therefore does not even have to be in the same country as that quoted in the credit, let alone the same).
2. It is only right for a bank to take seven banking days -following the day of receipt of the documents- to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly, if it is a ‘reasonable time’. This will depend on a number of factors. Based on the facts as you have outlined them it would seem that you may well have a good case that the issuing bank has taken more than a ‘reasonable time’. If so, sub-Article 14e comes in to play as well.
3. To me, if the issuing bank is not ultimately prepared to honour its obligations and you have exhausted/dismissed such routes as involving the correspondent banking teams of the two banks or complaining to the Taiwanese central bank, that leaves legal action. I would imagine that the credit, if expressed to be available in your country/freely available, would be construed as being subject to the laws of your country and the jurisdiction of the courts of your country.
Of course, if the legal proceedings are successful (from your perspective) but the issuing bank refuses to abide by the court order and has insufficient assets in your country to discharge the court order, you will probably have to take enforcement proceedings in a jurisdiction where the issuing bank does have sufficient assets, e.g. Taiwan.
[edited 11/9/01 3:28:49 PM: typo]
1. Based on the facts as you have outlined them it would appear that the issuing bank has raised an ‘invalid’ discrepancy; the credit contained the spellings ‘Tawu’ & ‘Tawau’ and, more to the point, there is not any UCP500 requirement for the beneficiary’s address to appear in any document (and, if it does, the address therefore does not even have to be in the same country as that quoted in the credit, let alone the same).
2. It is only right for a bank to take seven banking days -following the day of receipt of the documents- to examine the documents and determine whether to take up or refuse the documents and to inform the party from which it received the documents accordingly, if it is a ‘reasonable time’. This will depend on a number of factors. Based on the facts as you have outlined them it would seem that you may well have a good case that the issuing bank has taken more than a ‘reasonable time’. If so, sub-Article 14e comes in to play as well.
3. To me, if the issuing bank is not ultimately prepared to honour its obligations and you have exhausted/dismissed such routes as involving the correspondent banking teams of the two banks or complaining to the Taiwanese central bank, that leaves legal action. I would imagine that the credit, if expressed to be available in your country/freely available, would be construed as being subject to the laws of your country and the jurisdiction of the courts of your country.
Of course, if the legal proceedings are successful (from your perspective) but the issuing bank refuses to abide by the court order and has insufficient assets in your country to discharge the court order, you will probably have to take enforcement proceedings in a jurisdiction where the issuing bank does have sufficient assets, e.g. Taiwan.
[edited 11/9/01 3:28:49 PM: typo]
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Unreasonable Issuing Bank
I do not have much to add to what J Smith has pointed out, however in sympathy to your case, I think the issuing bank's intention of creating this flimsy discrepancy is to get away from paying the credit, probably in collusion with the beneficiary.
I believe you would have a good case against the reckless action of the issuing bank.
As for the advice of refusal, was it 734 or free format message? Because there might be away to defeat the issuing bank if it has failed to write the advice of refusal as per article 14. From my experience in swift some banks using free format messages omit certain requirements that should be there however it is safer to use MT 734.
You may wish to share with me the exact wording of the advise of refusal.
I believe you would have a good case against the reckless action of the issuing bank.
As for the advice of refusal, was it 734 or free format message? Because there might be away to defeat the issuing bank if it has failed to write the advice of refusal as per article 14. From my experience in swift some banks using free format messages omit certain requirements that should be there however it is safer to use MT 734.
You may wish to share with me the exact wording of the advise of refusal.
Unreasonable Issuing Bank
Just an afterthought, without responsibility/liability. Even though the credit is likely to be construed as being subject to your country's law, the Taiwanese courts may still be willing to hear the case (as opposed to enforcement proceedings), on the basis that there is not any substantive difference between your country's law and Taiwanese law* (assuming that the litigants do not contest this view).
This may be more convenient (assuming you win!)
*In relation to the matter(s) at dispute.
[edited 11/12/01 9:25:52 AM: Clarification]
This may be more convenient (assuming you win!)
*In relation to the matter(s) at dispute.
[edited 11/12/01 9:25:52 AM: Clarification]
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cynthiawong
- Posts: 7
- Joined: Fri Apr 05, 2019 5:30 pm
Unreasonable Issuing Bank
Thank you very much Mr J S Smith & Hatemshehab for your helpful advice.
As requested, the Taiwanese Bank's advice was in free format MT 999 & merely states:-
'Checking the docs we noted the following discrepancy-bene address diff on L/C. We are
return docs to you today.'
Do you gentlemen think the above complied with Art 14?
As requested, the Taiwanese Bank's advice was in free format MT 999 & merely states:-
'Checking the docs we noted the following discrepancy-bene address diff on L/C. We are
return docs to you today.'
Do you gentlemen think the above complied with Art 14?
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Unreasonable Issuing Bank
Having read the advice by the issuing bank, here are my personal opinions with any responsibility on my part.
The advice of refusal failed to satisfy the requirement of article 14 of UCP 500 due to two reasons:
1. It did not mention that the bank is refusing or rejecting the documents. The issuing bank after having checked the documents against the L/C should determine on the basis of documents whether it will accept them or not. The bank deciding to reject the documents should give an advice to that effect. If you look thoroughly to the wording of article 14 you will notice that, first of all, there is a requirement to advice the presenting party of the decision of rejection, refusal, rebuffing, denial, snubbing, repudiation, a word indicating rejection.
A simple semantic analysis of the wording of article 14 d would tell you that it does not need more than a horse sense to state the magic word “refuse” or any similar word. Please consider the phrases in the upper case and see that the article stresses that there must be a refusal of documents. Consider the phrase “ decide to refuse” and the phrase “such notice”. Ask yourself “such notice” refers to what? Does it refer to notice of acceptance of documents? Does it mean notice of waiver? Notice of a declaration of marriage? Or notice of love? The word “such” in English language is a demonstrative pronoun and demonstrative pronoun is derived from the Latin word “demonstrare” which means “refers clearly to”. Therefore “such” is intentionally inserted to refer clearly to the notice of refusal, the action expected by the issuing bank having decided to REFUSE the documents.
Article 14-d
“d. i. If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, DECIDES TO REFUSE the documents, IT MUST GIVE NOTICE TO THAT EFFECT by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents. SUCH NOTICE shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him
ii. SUCH NOTICE must state all discrepancies in respect of which the BANK REFUSES the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.”
To support my argument I quote here below an excerpt from the unpublished queries of the ICC Banking Commission. The title of the case is “What constitutes a clear indication of refusal under a notice of dishonour from the confirming bank, so as to comply with the conditions of Article 14?”
QUOTE
“UCP Article 14 (d)(i) prescribes the process if the bank decides to refuse the documents. It states that the bank must give notice of refusal by telecommunication or other expeditious means without delay but no later than the close of the seventh banking day after receipt of the documents. A notice of refusal must state that the bank is refusing the documents and must list all discrepancies under which the bank is refusing the documents. In addition, the notice must state whether the bank is holding the documents at the disposal of the presenter or returning them to him.
The notice of dishonour from the confirming bank, so as to comply with the conditions of sub- Article 14 , is to provide a clear indication of refusal by the confirming bank, list the discrepancy(ies) and evidence that the documents are either held at the disposal of, or being returned to, the presenters. These details must be conveyed in the first notice of refusal given to the presenter.”
UNQUOTE
If an issuing bank fails to conform to this requirement of sub- Article 14 (d), it is bound to honour the documents as presented, even though valid discrepancies may exist. The issuing bank, in this case, has clearly failed to provide a notice of rejection.
2. The second failure of the issuing bank is the phrase intended to be the discrepancy “bene address diff on L/C” THIS IS NOT A DISCREPANCY. This phrase, merely, is stating that there is a difference in the address of the beneficiary in the l/c probably the l/c contained to two different addressee of the beneficiary. The phrase does not tell us that there is a difference in the beneficiary’s address in a particular document, which the issuing bank has checked. Therefore the issuing bank has failed to contains a listing of the discrepancy(ies) observed in the advice it has sent to you and has therefore, failed to comply with this sub-Article 14-d ii.
The advice of refusal failed to satisfy the requirement of article 14 of UCP 500 due to two reasons:
1. It did not mention that the bank is refusing or rejecting the documents. The issuing bank after having checked the documents against the L/C should determine on the basis of documents whether it will accept them or not. The bank deciding to reject the documents should give an advice to that effect. If you look thoroughly to the wording of article 14 you will notice that, first of all, there is a requirement to advice the presenting party of the decision of rejection, refusal, rebuffing, denial, snubbing, repudiation, a word indicating rejection.
A simple semantic analysis of the wording of article 14 d would tell you that it does not need more than a horse sense to state the magic word “refuse” or any similar word. Please consider the phrases in the upper case and see that the article stresses that there must be a refusal of documents. Consider the phrase “ decide to refuse” and the phrase “such notice”. Ask yourself “such notice” refers to what? Does it refer to notice of acceptance of documents? Does it mean notice of waiver? Notice of a declaration of marriage? Or notice of love? The word “such” in English language is a demonstrative pronoun and demonstrative pronoun is derived from the Latin word “demonstrare” which means “refers clearly to”. Therefore “such” is intentionally inserted to refer clearly to the notice of refusal, the action expected by the issuing bank having decided to REFUSE the documents.
Article 14-d
“d. i. If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, DECIDES TO REFUSE the documents, IT MUST GIVE NOTICE TO THAT EFFECT by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents. SUCH NOTICE shall be given to the bank from which it received the documents, or to the Beneficiary, if it received the documents directly from him
ii. SUCH NOTICE must state all discrepancies in respect of which the BANK REFUSES the documents and must also state whether it is holding the documents at the disposal of, or is returning them to, the presenter.”
To support my argument I quote here below an excerpt from the unpublished queries of the ICC Banking Commission. The title of the case is “What constitutes a clear indication of refusal under a notice of dishonour from the confirming bank, so as to comply with the conditions of Article 14?”
QUOTE
“UCP Article 14 (d)(i) prescribes the process if the bank decides to refuse the documents. It states that the bank must give notice of refusal by telecommunication or other expeditious means without delay but no later than the close of the seventh banking day after receipt of the documents. A notice of refusal must state that the bank is refusing the documents and must list all discrepancies under which the bank is refusing the documents. In addition, the notice must state whether the bank is holding the documents at the disposal of the presenter or returning them to him.
The notice of dishonour from the confirming bank, so as to comply with the conditions of sub- Article 14 , is to provide a clear indication of refusal by the confirming bank, list the discrepancy(ies) and evidence that the documents are either held at the disposal of, or being returned to, the presenters. These details must be conveyed in the first notice of refusal given to the presenter.”
UNQUOTE
If an issuing bank fails to conform to this requirement of sub- Article 14 (d), it is bound to honour the documents as presented, even though valid discrepancies may exist. The issuing bank, in this case, has clearly failed to provide a notice of rejection.
2. The second failure of the issuing bank is the phrase intended to be the discrepancy “bene address diff on L/C” THIS IS NOT A DISCREPANCY. This phrase, merely, is stating that there is a difference in the address of the beneficiary in the l/c probably the l/c contained to two different addressee of the beneficiary. The phrase does not tell us that there is a difference in the beneficiary’s address in a particular document, which the issuing bank has checked. Therefore the issuing bank has failed to contains a listing of the discrepancy(ies) observed in the advice it has sent to you and has therefore, failed to comply with this sub-Article 14-d ii.
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KarenHan_disabled
- Posts: 12
- Joined: Fri Apr 05, 2019 5:20 pm
Unreasonable Issuing Bank
Cynthia
You may refer to the case of Voest-Alpine Trading USA Corp v Bank of China quoted in 2001 Annual Survey of Letter of Credit Law & Practice. I believe the court will be on your side.
Regards,
ahming
You may refer to the case of Voest-Alpine Trading USA Corp v Bank of China quoted in 2001 Annual Survey of Letter of Credit Law & Practice. I believe the court will be on your side.
Regards,
ahming
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Unreasonable Issuing Bank
Cynthia
A point for you to note is that it is a banking practice that the advice of refusal is sent by authenticated SWIFT message. The issuing bank used unauthenticated message; free format 999. Generally, the banks deem the advice of refusal as important as the credit instrument itself and the amendment. For that purpose, they use message type 734 or 799 if they want to refuse the documents. I would suggest that you check the matter with your bank’s correspondent department and see if there is an agreement to this effect. It might have been mentioned in a way or another, as from my experience in SWIFT I used not to accept free format message to refuse documents unless the message contains a “test key” thereby becoming authenticated. If there is anything to that effect then the issuing bank will sink more in the ditch as he will be breaching a contract and the advice of refusal will be considered null and void even if it is correct under UCP 500.
A point for you to note is that it is a banking practice that the advice of refusal is sent by authenticated SWIFT message. The issuing bank used unauthenticated message; free format 999. Generally, the banks deem the advice of refusal as important as the credit instrument itself and the amendment. For that purpose, they use message type 734 or 799 if they want to refuse the documents. I would suggest that you check the matter with your bank’s correspondent department and see if there is an agreement to this effect. It might have been mentioned in a way or another, as from my experience in SWIFT I used not to accept free format message to refuse documents unless the message contains a “test key” thereby becoming authenticated. If there is anything to that effect then the issuing bank will sink more in the ditch as he will be breaching a contract and the advice of refusal will be considered null and void even if it is correct under UCP 500.
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Unreasonable Issuing Bank
Hatem Shehab has so well covered this issue that there is little I can say except that the alternative to litigation is DOCDEX arbitration. This will be cheaper than litigation and would be decided by people more than familiar with L/C issues.
Unreasonable Issuing Bank
ICC DOCDEX IS NOT AN ARBITRATION
Dear Laurence,
We note that many DC practitioners, as well as certain lawyers, refer to the ICC DOCDEX as a kind of arbitration. This is a misleading message.
We were one of those who brewed the concept of a simple, speedy and inexpensive resolution of DC disputes by the experts. Sorry that we cannot release some sensitive information here that we came to know about whilst discussing with Charles del Busto during the brewing stage.
SOME BACKGROUND STORY ON CREATION OF DOCDEX
It is suffice to say that ICC has already a Commission on Arbitration for many years. Their services are relatively expensive and it may take a longer time to resolve the trade disputes. To avoid duplication or conflicts with the existing ICC Arbitration Commission, the Banking Commission had to think out a different approach provided that it was not an arbitration process. We can only share up to this point and no further.
Hence, the DOCDEX is one of the dispute resolution processes/methods but it is definitely NOT an arbitration or mediation.
DOCDEX IS UNIQUE BY ITSELF
As a Member of the Chartered Institute of Arbitration (MCIArb) London, we can only say that all arbitration awards are enforceable by law. The DOCDEX is not enforceable by law unless the parites so agree (Article 1.4 of the DOCDEX Rules, ICC Publication No. 577). Hence it is not an arbitration.
There are of course other differences.
FURTHER UNDERSTANDING THE DIFFERENCES AMONGST DIFFERENT DISPUTE RESOLUTION PROCESSES
For those members who would like to go further on this subject, please refer to "How to Differentiate between Litiqation, Arbitration, Adjudication, Mediation, Conciliation & Mini-trial and the Advantages & Disadvantages of Each of These Dispute Resolution Mechanisms?" in the "Articles in Other Media" section in our website.
http://www.tolee.com
[edited 11/22/01 8:22:51 PM]
Dear Laurence,
We note that many DC practitioners, as well as certain lawyers, refer to the ICC DOCDEX as a kind of arbitration. This is a misleading message.
We were one of those who brewed the concept of a simple, speedy and inexpensive resolution of DC disputes by the experts. Sorry that we cannot release some sensitive information here that we came to know about whilst discussing with Charles del Busto during the brewing stage.
SOME BACKGROUND STORY ON CREATION OF DOCDEX
It is suffice to say that ICC has already a Commission on Arbitration for many years. Their services are relatively expensive and it may take a longer time to resolve the trade disputes. To avoid duplication or conflicts with the existing ICC Arbitration Commission, the Banking Commission had to think out a different approach provided that it was not an arbitration process. We can only share up to this point and no further.
Hence, the DOCDEX is one of the dispute resolution processes/methods but it is definitely NOT an arbitration or mediation.
DOCDEX IS UNIQUE BY ITSELF
As a Member of the Chartered Institute of Arbitration (MCIArb) London, we can only say that all arbitration awards are enforceable by law. The DOCDEX is not enforceable by law unless the parites so agree (Article 1.4 of the DOCDEX Rules, ICC Publication No. 577). Hence it is not an arbitration.
There are of course other differences.
FURTHER UNDERSTANDING THE DIFFERENCES AMONGST DIFFERENT DISPUTE RESOLUTION PROCESSES
For those members who would like to go further on this subject, please refer to "How to Differentiate between Litiqation, Arbitration, Adjudication, Mediation, Conciliation & Mini-trial and the Advantages & Disadvantages of Each of These Dispute Resolution Mechanisms?" in the "Articles in Other Media" section in our website.
http://www.tolee.com
[edited 11/22/01 8:22:51 PM]