I agree to the suggested solution to the problem. It should be up to the presenter – the owner of the documents – to instruct the issuing bank how to act in case of refusal of the documents including authorization to release docs to the applicant if they are acceptable to him after a refusal decision by the Issuing Bank.
Pavel Andrle
Release of discrepant documents
Release of discrepant documents
My own bank has included for some time a provision in all documentary credits that it issues (out of the UK) that if we find documents to be discrepant and if we approach the applicant for a waiver we shall, unless the presenter has expressly stated otherwise, release documents to the applicant upon their granting a waiver in a manner acceptable to us, WITHOUT obtaining the presenter’s further approval.
[edited 8/20/01 3:38:52 PM]
[edited 8/20/01 3:39:36 PM]
[edited 8/20/01 3:38:52 PM]
[edited 8/20/01 3:39:36 PM]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Release of discrepant documents
Mr. J. Smith's comments on his bank's standard procedure regarding discrepant documents (20.8.2001) is contrary to the very specific requirements governing this situation in Article 14 d. Could he please explain why his bank has chosen to flout the UCP in this way ?
Release of discrepant documents
I regret it is not apparent to me how our modification of the provisions of Article 14 ‘flout the UCP’ (despite having read all the contributions above). To enable me to respond, I should be grateful for an explanation of why you believe this to be the case. It would be helpful if you adduced any UCP500 articles, any views that have been expressed on the subject by the ICC Committee on Banking Technique and Practice (since the advent of UCP500) or any elements of contractual law that you feel substantiate your views.
Release of discrepant documents
A GOOD BOY WOULD NOT DO NAUGHTY THINGS DISCOURAGED BY HIS PARENTS
Putting the special "documents disposal clause" as suggested by Mr. J. Smith in a DC is of course convenient to the issuing bank but for anything "discouraged" (rather than "prohibited") by the ICC Banking Commission, a reputable bank that wishes to earn the respect of the trading community should think twice in putting such special clasue (what we consider as a kind of "soft clause") in its DC.
Article 14 of the UCP 500 gives the RIGHT to the beneficiary/presenter in disposal of the rejected documents and let no banker take this right from them, Amen. Perhaps this is what Mr. Bacon means by saying such "soft clause" "flouts the UCP" - doing something against the underlying principle of the UCP 500.
Can we add a provision in the DC that it deals with goods and not with documents? or Article 9 does not apply?
According to our consultancy experience, a beneficiary who knows not much about UCP and is hungry for business may have accepted such provisions.
T. O. Lee
http://www.tolee.com
[edited 2/2/02 9:00:42 PM]
Putting the special "documents disposal clause" as suggested by Mr. J. Smith in a DC is of course convenient to the issuing bank but for anything "discouraged" (rather than "prohibited") by the ICC Banking Commission, a reputable bank that wishes to earn the respect of the trading community should think twice in putting such special clasue (what we consider as a kind of "soft clause") in its DC.
Article 14 of the UCP 500 gives the RIGHT to the beneficiary/presenter in disposal of the rejected documents and let no banker take this right from them, Amen. Perhaps this is what Mr. Bacon means by saying such "soft clause" "flouts the UCP" - doing something against the underlying principle of the UCP 500.
Can we add a provision in the DC that it deals with goods and not with documents? or Article 9 does not apply?
According to our consultancy experience, a beneficiary who knows not much about UCP and is hungry for business may have accepted such provisions.
T. O. Lee
http://www.tolee.com
[edited 2/2/02 9:00:42 PM]
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Release of discrepant documents
Most of the cases were issuing banks try to exercise the right to release documents to the applicant without obtaining a waiver after being rejected are in a way stimulated by the conception of (customer care). In many cases applicants try to blackmail the beneficiary to grant them some discount to the value of documents, if it works that’s it, if it did not and the applicant assured himself that the discrepancy is not material i.e. on paper only, then the discrepant documents will be waived. Some bankers after having attended some courses on customer service excellence feel thrilled to serve their applicants by doing anything to save their interest. Yes they are good in customer service but at the same time they need more training on trade finance. That’s why we invite experience trainers on trade finance to teach us how to avoid such risks resulting from malpractices
We learn two things from this practice.
ONE: customer care is subjugated to exploit the interest of the beneficiary vested in the letter of credit
TWO: the letter of credit in a way intentionally or not, is in inconsistency with it basic nature as per article 4 of UCP 500. If the applicant is given the opportunity to ascertain of the material discrepancies in the goods, then the parties to the letters of credit deal with goods not with documents. It would be easier and time effective if we could stipulate such a clause in an L/C!!!!!!!!!!!! "Discrepant documents will be released to the applicant upon confirming that actual goods shipped are as per specifications required against applicant's written waiver to discrepancies"
I’m not saying that all banks are doing this, but to be truthful I have encountered many cases as such. Off course bankers do not voice this out but it is there.
Would it be easy for a trade finance banker to advise and confirm such an incoming L/C to his customer, being a beneficiary, taking into consideration Mr. Lee’s exception that he is not hungry for business???????????
[edited 8/22/01 12:10:26 AM]
We learn two things from this practice.
ONE: customer care is subjugated to exploit the interest of the beneficiary vested in the letter of credit
TWO: the letter of credit in a way intentionally or not, is in inconsistency with it basic nature as per article 4 of UCP 500. If the applicant is given the opportunity to ascertain of the material discrepancies in the goods, then the parties to the letters of credit deal with goods not with documents. It would be easier and time effective if we could stipulate such a clause in an L/C!!!!!!!!!!!! "Discrepant documents will be released to the applicant upon confirming that actual goods shipped are as per specifications required against applicant's written waiver to discrepancies"
I’m not saying that all banks are doing this, but to be truthful I have encountered many cases as such. Off course bankers do not voice this out but it is there.
Would it be easy for a trade finance banker to advise and confirm such an incoming L/C to his customer, being a beneficiary, taking into consideration Mr. Lee’s exception that he is not hungry for business???????????
[edited 8/22/01 12:10:26 AM]
Release of discrepant documents
I thought an interim reply, pending a response to my earlier query, that deals with some of T.O.’s comments relating to sub-Article 14dii would be helpful. My comments are of course intended to be made in the spirit of the free exchange of views in honest open and constructive debate, and I accept others may well have legitimate and honourable differences of view.
1. ‘This is a banking practice (or malpractice) discouraged by ICC Banking Commission.’
I regret I am not able to trace any ICC document, relating to UCP500, that supports this statement. Certainly, the latest ICC opinion on the subject (which does not currently appear to be accessible on DC-PRO) does not seem to offer any criticism of it.
2. ‘Before payment, the documents belong to the presenter (either the negotiating bank or the beneficiary) and without the disposal authority given by the presenter, the issuing bank has no right to dispose of the documents in a manner it prefers.’
Provided ‘Before payment’ can be interpreted as ‘before the documents are taken up by the issuing bank in accordance with the availability provisions of the credit’, then I wholeheartedly agree, and therefore I cannot see how practice like my bank’s transgresses this fundamental principle in any way. (There is, of course, no question of releasing documents against a waiver that does not authorise take up other than in accordance the credit availability provisions and for the amount of the presentation.)
3. ‘the issuing bank, by adding such terms and conditions in the LC, has lost its neutrality and its independent position as a paymaster that the beneficiary can rely upon.’
I believe that an issuing bank’s obligations, as independent paymaster, flow from sub-Article 9a, i.e. if facially compliant documents are presented the issuing bank is obliged to discharge its obligations in accordance with the availability provisions of the credit, irrespective of the views of the applicant. Therefore, if documents are not facially compliant, an issuing bank is released from its sub-Article 9a obligations and thus from its role as independent paymaster, unless it subsequently takes up the documents (with the applicant’s agreement).
4. ‘Even if this is inserted in the LC as a special condition, it may be rejected by certain courts of law because it is against the principle of fair trade, which healthy growth of international trade relies upon.’
I was under the impression that the courts, in the major ‘developed’ countries at least, recognised the freedom of parties to contract on terms mutually acceptable to themselves (as Article 1 seems to recognise). Therefore, by presenting documents under a credit a beneficiary is agreeing to the provisions of the contract contained in the credit and thus to be bound thereby. (If the beneficiary has failed to properly read them, I cannot see they would be deserving of any sympathy.) Therefore, I would not anticipate a court setting aside a credit that clearly and unambiguously modified the effect of sub-Article 14aii, irrespective of any claimed impact on international trade.
5. ‘The UCP 500 allows the trading community to add some special conditions to override the UCP 500 only to the extent that it is in line with the basic principles of fair trade and UCP doctrines and not further.’
Given the provisions of Article 1, ‘The Uniform Customs and Practice for Documentary Credits ….. are binding on all parties thereto, unless otherwise expressly stipulated in the Credit.’, I cannot accept this statement. Even if Article 1 did not say this, I believe the issuing bank would be legally free (subject, where necessary, to the applicant’s express/implied agreement) to vary the provisions of UCP500 in any way it saw fit.
Therefore, there is no doubt in my mind an issuing bank can ‘add a provision in the DC that it deals with goods and not with documents’ or that ‘Article 9 does not apply’, although I appreciate the resultant instrument may well fall outside the definition contained within Article 2.
6. Overall, I share the views of ‘brasbasah’. To me this arrangement is in the interests of the beneficiary (documents are taken up more quickly in accordance with the availability provisions of the credit), as well as the issuing bank (additional operational expense is avoided), and -where the applicant does not already have control over the goods (bill of lading etc)- the applicant (who is more quickly able to obtain such control). In addition, my bank’s particular approach gives the beneficiary the option of ‘re-instating’ sub-Article 14aii should they so wish.
7. Finally, for the avoidance of doubt, I would like to stress to the last contributor that we are not talking about ‘issuing banks try(ing) to exercise the right to release documents to the applicant without obtaining a waiver after being rejected’.
[edited 8/22/01 3:10:33 PM]
[edited 8/22/01 3:11:31 PM]
1. ‘This is a banking practice (or malpractice) discouraged by ICC Banking Commission.’
I regret I am not able to trace any ICC document, relating to UCP500, that supports this statement. Certainly, the latest ICC opinion on the subject (which does not currently appear to be accessible on DC-PRO) does not seem to offer any criticism of it.
2. ‘Before payment, the documents belong to the presenter (either the negotiating bank or the beneficiary) and without the disposal authority given by the presenter, the issuing bank has no right to dispose of the documents in a manner it prefers.’
Provided ‘Before payment’ can be interpreted as ‘before the documents are taken up by the issuing bank in accordance with the availability provisions of the credit’, then I wholeheartedly agree, and therefore I cannot see how practice like my bank’s transgresses this fundamental principle in any way. (There is, of course, no question of releasing documents against a waiver that does not authorise take up other than in accordance the credit availability provisions and for the amount of the presentation.)
3. ‘the issuing bank, by adding such terms and conditions in the LC, has lost its neutrality and its independent position as a paymaster that the beneficiary can rely upon.’
I believe that an issuing bank’s obligations, as independent paymaster, flow from sub-Article 9a, i.e. if facially compliant documents are presented the issuing bank is obliged to discharge its obligations in accordance with the availability provisions of the credit, irrespective of the views of the applicant. Therefore, if documents are not facially compliant, an issuing bank is released from its sub-Article 9a obligations and thus from its role as independent paymaster, unless it subsequently takes up the documents (with the applicant’s agreement).
4. ‘Even if this is inserted in the LC as a special condition, it may be rejected by certain courts of law because it is against the principle of fair trade, which healthy growth of international trade relies upon.’
I was under the impression that the courts, in the major ‘developed’ countries at least, recognised the freedom of parties to contract on terms mutually acceptable to themselves (as Article 1 seems to recognise). Therefore, by presenting documents under a credit a beneficiary is agreeing to the provisions of the contract contained in the credit and thus to be bound thereby. (If the beneficiary has failed to properly read them, I cannot see they would be deserving of any sympathy.) Therefore, I would not anticipate a court setting aside a credit that clearly and unambiguously modified the effect of sub-Article 14aii, irrespective of any claimed impact on international trade.
5. ‘The UCP 500 allows the trading community to add some special conditions to override the UCP 500 only to the extent that it is in line with the basic principles of fair trade and UCP doctrines and not further.’
Given the provisions of Article 1, ‘The Uniform Customs and Practice for Documentary Credits ….. are binding on all parties thereto, unless otherwise expressly stipulated in the Credit.’, I cannot accept this statement. Even if Article 1 did not say this, I believe the issuing bank would be legally free (subject, where necessary, to the applicant’s express/implied agreement) to vary the provisions of UCP500 in any way it saw fit.
Therefore, there is no doubt in my mind an issuing bank can ‘add a provision in the DC that it deals with goods and not with documents’ or that ‘Article 9 does not apply’, although I appreciate the resultant instrument may well fall outside the definition contained within Article 2.
6. Overall, I share the views of ‘brasbasah’. To me this arrangement is in the interests of the beneficiary (documents are taken up more quickly in accordance with the availability provisions of the credit), as well as the issuing bank (additional operational expense is avoided), and -where the applicant does not already have control over the goods (bill of lading etc)- the applicant (who is more quickly able to obtain such control). In addition, my bank’s particular approach gives the beneficiary the option of ‘re-instating’ sub-Article 14aii should they so wish.
7. Finally, for the avoidance of doubt, I would like to stress to the last contributor that we are not talking about ‘issuing banks try(ing) to exercise the right to release documents to the applicant without obtaining a waiver after being rejected’.
[edited 8/22/01 3:10:33 PM]
[edited 8/22/01 3:11:31 PM]
Release of discrepant documents
Dear Jeremy,
We do not wish to continue the debate on the issues. We can see that we cannot convince you and you cannot convince us. Under such circumstance, let us follow the famous negotiation strategy of the late Prime Minister (we are not absolutely sure of this English translation of his title) Chow En-lai: "Let us put aside our differences and focus on the common grounds".
We consider that your bank's practice may not be illegal but from business ethics point of view, we hold certain reservation. We see it as the soccer referee trying to kick the ball into the net to help the players in a no goal game.
We also anticipate that this practice or malpractice as someone calls it, may be fixed by the next revision of the UCP or in the SBPED.
As we are self-employed, we cannot afford continuing a long debate. We have to find our rice and noodles, if not bread and butter.
We are from http://www.tolee.com
[edited 2/2/02 8:58:52 PM]
We do not wish to continue the debate on the issues. We can see that we cannot convince you and you cannot convince us. Under such circumstance, let us follow the famous negotiation strategy of the late Prime Minister (we are not absolutely sure of this English translation of his title) Chow En-lai: "Let us put aside our differences and focus on the common grounds".
We consider that your bank's practice may not be illegal but from business ethics point of view, we hold certain reservation. We see it as the soccer referee trying to kick the ball into the net to help the players in a no goal game.
We also anticipate that this practice or malpractice as someone calls it, may be fixed by the next revision of the UCP or in the SBPED.
As we are self-employed, we cannot afford continuing a long debate. We have to find our rice and noodles, if not bread and butter.
We are from http://www.tolee.com
[edited 2/2/02 8:58:52 PM]
Release of discrepant documents
T.O.,
I am happy to go along with your suggestion. However, for the avoidance of any possible doubt, I would just like to stress that my bank attaches great importance to its standing in the market place. Therefore it would not adopt a practice if it thought there was a real prospect of reputational damage, for example through the implementation of ‘unethical practices’ and, for the reasons I’ve given, we are 100% confident this is not the case here.
Enjoy your rice and noodles, but I must warn you of the possibility of starch overload if you have them with bread and butter as well.
Jeremy Smith.
I am happy to go along with your suggestion. However, for the avoidance of any possible doubt, I would just like to stress that my bank attaches great importance to its standing in the market place. Therefore it would not adopt a practice if it thought there was a real prospect of reputational damage, for example through the implementation of ‘unethical practices’ and, for the reasons I’ve given, we are 100% confident this is not the case here.
Enjoy your rice and noodles, but I must warn you of the possibility of starch overload if you have them with bread and butter as well.
Jeremy Smith.
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Release of discrepant documents
I call upon the participators in this forum to review the unpublished ICC Opinion on the same issue of inserting a clause in the refusal advice to release documents against a waiver from the applicant.
The query is entitled “Where the issuing bank states it will release documents (against a waiver from the applicant) provided it does not have any contrary instructions from the presenter”
The query is entitled “Where the issuing bank states it will release documents (against a waiver from the applicant) provided it does not have any contrary instructions from the presenter”