My apologies to Jeremy Smith & others for the tardiness of my reply which was unavoidable.
Article 14di states that if a bank decides to refuse documents, it MUST give notice to the presenter.
Jeremy's standard clause removes this safeguard.
Article 14dii states that such notice MUST list all discrepancies and the bank refusing documents MUST state whether such documents are held at the disposal of the presenter or is being returned to him.
Again Jeremy's standard clause removes this safeguard.
What is the result of such a clause ?
I put it to Jeremy that in the event of an alleged discrepancy, the issuing bank and the applicant has the upper hand. This is no doubt the reason for insertion of this clause. However one must consider that without a beneficiary there would be no L/C.
I regularly advise beneficiary clients on acceptability of advised L/Cs. I would certainly advise them to delete such clauses by amendment or nominate another issuing bank. Jeremy is undoubtedly aware that the general level of knowledge of L/Cs among beneficiaries is lower than bankers and they (bene) are unlikely to appreciate the significance of such a clause until they are directly affected by it.
You may take the stance that no ill comes of this clause, in that it merely expedites matters. There may be underlying clauses in the sales contract between applicant and beneficiary of which the issuing bank is unaware. A refusal by the issuing bank without giving the bene the opportunity to rebut or correct may give the applicant ammunition to claim breach of contract by citing supposedly undisputed discrepancies.
Release of discrepant documents
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Release of discrepant documents
FREEDOM TO CONTRACT SHOULD NOT BE ABUSED
After viewing the different opinions from experienced bankers, we can only comment that the notion of "freedom to contract" cannot be carried too far. A bank has of course its right to do anything it wants, PROVIDED that the rights of other parties, particularly the right for a benficiary to dispose of its only documents, its OWN property before payment, are ALSO respected.
Laws have played a very important role to protect our private properties, to ensure that they would not be interferred by others.
A COMMON SENSE EXAMPLE
This is not a profound UCP issue. It is only simple common sense. Our neighbours can give us a good answer. Can a banker stick a notice to his neighbour's door in the morning, "I will take your dog for a walk this evening unless I receive a 'No thanks' note from you when I come home after work"?
Yes Mr. Banker, you are doing a thing you think nice and good for your neighbour, a voluntary service, but you still have to respect the right of your neighbour how to treat his own dog.
Unless you have fully and timely paid for the dog, you have no right to do anything with the dog. An unreplied notice does not give you the right as silence does not mean acceptance.
We are from http://www.tolee.com
[edited 8/27/01 6:25:47 PM]
After viewing the different opinions from experienced bankers, we can only comment that the notion of "freedom to contract" cannot be carried too far. A bank has of course its right to do anything it wants, PROVIDED that the rights of other parties, particularly the right for a benficiary to dispose of its only documents, its OWN property before payment, are ALSO respected.
Laws have played a very important role to protect our private properties, to ensure that they would not be interferred by others.
A COMMON SENSE EXAMPLE
This is not a profound UCP issue. It is only simple common sense. Our neighbours can give us a good answer. Can a banker stick a notice to his neighbour's door in the morning, "I will take your dog for a walk this evening unless I receive a 'No thanks' note from you when I come home after work"?
Yes Mr. Banker, you are doing a thing you think nice and good for your neighbour, a voluntary service, but you still have to respect the right of your neighbour how to treat his own dog.
Unless you have fully and timely paid for the dog, you have no right to do anything with the dog. An unreplied notice does not give you the right as silence does not mean acceptance.
We are from http://www.tolee.com
[edited 8/27/01 6:25:47 PM]
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Release of discrepant documents
In short, the refusal notice sent by the issuing bank should be unconditional in its nature.
The bank after having surrendered it right to avail from the documents sent under a letter of credit and not to allow delivery of cargo to take place cannot at the same time retain this right.
The clause under discussion is a form of deceit to the beneficiary (although unintentional). The beneficiary having been notified of the refusal may search for another potential buyer and may not want to release documents again to the same applicants (for many reasons) and amidst that he is notified that documents have been taken up.
What options have been left before the beneficiary to exercise?
On the one hand, we are telling him “the documents is yours, to hell with your documents, your documents are foul. On the other hand we are saying, “despite all this, we are happy with your documents, your documents serve the purpose, your documents have been cleaned”
What one gives by the right hand should not take it by the left hand.
[edited 8/28/01 1:11:42 PM]
The bank after having surrendered it right to avail from the documents sent under a letter of credit and not to allow delivery of cargo to take place cannot at the same time retain this right.
The clause under discussion is a form of deceit to the beneficiary (although unintentional). The beneficiary having been notified of the refusal may search for another potential buyer and may not want to release documents again to the same applicants (for many reasons) and amidst that he is notified that documents have been taken up.
What options have been left before the beneficiary to exercise?
On the one hand, we are telling him “the documents is yours, to hell with your documents, your documents are foul. On the other hand we are saying, “despite all this, we are happy with your documents, your documents serve the purpose, your documents have been cleaned”
What one gives by the right hand should not take it by the left hand.
[edited 8/28/01 1:11:42 PM]
Release of discrepant documents
Dear Contributors,
I had not appreciated there was a 2nd page to this (lively!) debate, otherwise you’d have heard from me sooner.
Firstly, thank you to Laurence Bacon for responding. Secondly, I am personally -and respectfully- amazed that there should be so much opposition to our practice where EVERYBODY obviously -to my mind- wins from it (see below). Thirdly, my personal response (without responsibility) to the three ‘postings’ above are:
1. Our standard clause does not remove the requirement to give a full notice per sub-Article 14d, except the requirement to state we are holding the documents to the presenter’s order etc. Instead, we can say we are seeking a waiver per the credit terms. Therefore, the beneficiary has every opportunity to contest the validity of any discrepancies or make a complying re-presentation if the documents have not been taken up in the meantime.
2. The issuing bank and the applicant do not get ‘the upper hand’. The documents cannot be released to the applicant unless they give authority to take up the documents for the amount of the presentation and in accordance with the credit availability provisions.
3. Beneficiary’s may not appreciate the significance of the clause, but what is there to appreciate, other than the documents will -with few exceptions- be taken up and released more quickly than they otherwise would be?
4. Given the above, I cannot see there is any ‘abuse’ of the freedom to contract (not that I –philosophically(!)- think such a thing is possible anyway); I find it astonishing that any one would have any sympathy for someone who agrees to a contract without having properly read it (unless, perhaps, they are a PRIVATE individual (at whom most, if not all, unfair contract legislation is aimed)). Not that the beneficiary suffers ANYWAY, as:
A. As already stated, the documents will -with few exceptions- be taken up and released more quickly than they otherwise would be, therefore in most cases payment will be quicker.
B. The beneficiary knows that they will not AUTOMATICALLY start having to incur the cost, inconvenience and worry of finding another buyer, but that there is still a distinct chance the documents will be taken up (as -in my experience- they usually are). How often do beneficiaries really want to do this? I cannot imagine anyone could realistically claim other than on a -in my opinion, small- minority of occasions.
5. T.O., sorry but the dog analogy was completely lost on me. However, I would say that as ICC Document 470/496rev (the opinion I believe ‘hatemshehab’ is referring to but which I still cannot access on DC-PRO) acknowledges:
‘The ability to delete or amend Articles of the UCP is in line with Article 1 of the UCP500 whereby the terms of the letter of credit may/would override one or more provisions contained in the UCP Articles. The presentation of documents by the beneficiary would constitute their agreement to the condition [similar to, but NOT -I must stress- the same as that we use] expressed in the credit.’
Presentation of documents = acceptance of the credit terms, not silence.
6. I regret am not sure what is meant by ‘the refusal notice sent by the issuing bank should be unconditional in its nature’. If this means it should be as per sub-Article 14d, then I stand by the points above and below.
7. The point is the bank has not surrendered its right to release the documents to the applicant PROVIDED the applicant gives authority to take up the documents for the amount of the presentation and in accordance with the credit availability provisions.
8. I vehemently and trenchantly [touch of verbosity there?] reject the suggestion there is any deceit, because the credit is quite clear as to its ‘terms and conditions’ and, as stated above, the beneficiary gains in most instances.
9. The options we leave the beneficiary are, on receipt of the notice of discrepancies to:
A. Dispute the discrepancies, or:
B. Make a re-presentation, if documents are not in the meantime taken up, or:
C. Sit back and await for the documents to be taken up, and if they are not:
D. To ask that they be returned/released to a third party.
Trust this allays all concerns on the part of those with doubts and that you will now give serious consideration to adopting this practice given the -to me- indisputable benefits for all (including the dear old beneficiary).
[edited 8/28/01 6:10:49 PM]
I had not appreciated there was a 2nd page to this (lively!) debate, otherwise you’d have heard from me sooner.
Firstly, thank you to Laurence Bacon for responding. Secondly, I am personally -and respectfully- amazed that there should be so much opposition to our practice where EVERYBODY obviously -to my mind- wins from it (see below). Thirdly, my personal response (without responsibility) to the three ‘postings’ above are:
1. Our standard clause does not remove the requirement to give a full notice per sub-Article 14d, except the requirement to state we are holding the documents to the presenter’s order etc. Instead, we can say we are seeking a waiver per the credit terms. Therefore, the beneficiary has every opportunity to contest the validity of any discrepancies or make a complying re-presentation if the documents have not been taken up in the meantime.
2. The issuing bank and the applicant do not get ‘the upper hand’. The documents cannot be released to the applicant unless they give authority to take up the documents for the amount of the presentation and in accordance with the credit availability provisions.
3. Beneficiary’s may not appreciate the significance of the clause, but what is there to appreciate, other than the documents will -with few exceptions- be taken up and released more quickly than they otherwise would be?
4. Given the above, I cannot see there is any ‘abuse’ of the freedom to contract (not that I –philosophically(!)- think such a thing is possible anyway); I find it astonishing that any one would have any sympathy for someone who agrees to a contract without having properly read it (unless, perhaps, they are a PRIVATE individual (at whom most, if not all, unfair contract legislation is aimed)). Not that the beneficiary suffers ANYWAY, as:
A. As already stated, the documents will -with few exceptions- be taken up and released more quickly than they otherwise would be, therefore in most cases payment will be quicker.
B. The beneficiary knows that they will not AUTOMATICALLY start having to incur the cost, inconvenience and worry of finding another buyer, but that there is still a distinct chance the documents will be taken up (as -in my experience- they usually are). How often do beneficiaries really want to do this? I cannot imagine anyone could realistically claim other than on a -in my opinion, small- minority of occasions.
5. T.O., sorry but the dog analogy was completely lost on me. However, I would say that as ICC Document 470/496rev (the opinion I believe ‘hatemshehab’ is referring to but which I still cannot access on DC-PRO) acknowledges:
‘The ability to delete or amend Articles of the UCP is in line with Article 1 of the UCP500 whereby the terms of the letter of credit may/would override one or more provisions contained in the UCP Articles. The presentation of documents by the beneficiary would constitute their agreement to the condition [similar to, but NOT -I must stress- the same as that we use] expressed in the credit.’
Presentation of documents = acceptance of the credit terms, not silence.
6. I regret am not sure what is meant by ‘the refusal notice sent by the issuing bank should be unconditional in its nature’. If this means it should be as per sub-Article 14d, then I stand by the points above and below.
7. The point is the bank has not surrendered its right to release the documents to the applicant PROVIDED the applicant gives authority to take up the documents for the amount of the presentation and in accordance with the credit availability provisions.
8. I vehemently and trenchantly [touch of verbosity there?] reject the suggestion there is any deceit, because the credit is quite clear as to its ‘terms and conditions’ and, as stated above, the beneficiary gains in most instances.
9. The options we leave the beneficiary are, on receipt of the notice of discrepancies to:
A. Dispute the discrepancies, or:
B. Make a re-presentation, if documents are not in the meantime taken up, or:
C. Sit back and await for the documents to be taken up, and if they are not:
D. To ask that they be returned/released to a third party.
Trust this allays all concerns on the part of those with doubts and that you will now give serious consideration to adopting this practice given the -to me- indisputable benefits for all (including the dear old beneficiary).
[edited 8/28/01 6:10:49 PM]
Release of discrepant documents
Dear Jeremy, your further clarification is understood, but not agreed because we do not share the same views unfortunately.
Should we ask you a simple question:
SHOULD WE USE 'SOFT CLAUSES' IN DC?
To ensure that we are of the same wavelength, by that we mean clauses such as "payment against prsentation of a certificate from the importing country's food and drug authority to be counter-signed and also presented by the applicant (yes, we have seen such a DC requirement)".
According to your views expressed so far, the answer should be "Yes". If a beneficiary reads such a soft clause and does not ask for amendment, then he has to blame himself and this soft clause is both binding and ethical.
CUSTOMERS NEVER KNOW WHAT THEY WANT
To share you with the experience gained from doing DC workshops to traders in different countries , whether open or in-house, most of them cannot forsee the serious consequences of "soft clauses". Otherwise why there are so many traders getting hooked on PBI (prime bank instruments) and HYIP (high yield investment programmes), which need only simple common sense rather than the UCP to understand that the claims for good profits are untrue.
There is a famous saying in consumer behavour study: "Customers never know what they want". Customers are smart people or they would not be so successful but not necessarily equally smart on all technical issues, such as the UCP.
The path to evil is often paved with goodwill.
We are from http://www.tolee.com
[edited 2/2/02 8:56:51 PM]
Should we ask you a simple question:
SHOULD WE USE 'SOFT CLAUSES' IN DC?
To ensure that we are of the same wavelength, by that we mean clauses such as "payment against prsentation of a certificate from the importing country's food and drug authority to be counter-signed and also presented by the applicant (yes, we have seen such a DC requirement)".
According to your views expressed so far, the answer should be "Yes". If a beneficiary reads such a soft clause and does not ask for amendment, then he has to blame himself and this soft clause is both binding and ethical.
CUSTOMERS NEVER KNOW WHAT THEY WANT
To share you with the experience gained from doing DC workshops to traders in different countries , whether open or in-house, most of them cannot forsee the serious consequences of "soft clauses". Otherwise why there are so many traders getting hooked on PBI (prime bank instruments) and HYIP (high yield investment programmes), which need only simple common sense rather than the UCP to understand that the claims for good profits are untrue.
There is a famous saying in consumer behavour study: "Customers never know what they want". Customers are smart people or they would not be so successful but not necessarily equally smart on all technical issues, such as the UCP.
The path to evil is often paved with goodwill.
We are from http://www.tolee.com
[edited 2/2/02 8:56:51 PM]
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Release of discrepant documents
I QUOTE BELOW THE ICC OPINION ON THE SUBJECT
From the Unpublished queries of the ICC Banking Commission
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
From Rule and Articles UCP 500 Article 14; sub-Article 14(d)(ii)
Query
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 Query
This is a joint submission by Bank B (BB), Country H and Bank C, Country S (CS). Issue CS as advising bank did also negotiate documents under a letter of credit issued by BB. The documents contained at least one undisputed discrepancy. Therefore, BB refused the documents by means of sending a SWIFT message to CS with the following wording: "LC … Your ref … Documents for … Drawn under our Doc. Credit No. … Documents received with following discrepancy(ies): 1. B/L issued and signed not as per Article 23(a)(i) of UCP 500 2. One copy each of invoice and specification list not marked 'original' as per Art.20 of UCP 500. This advice constitutes our refusal in accordance with Article 14 of UCP 500. We are referring same to the applicant. Should the discrepancy(ies) be accepted, documents will be released against their payment/acceptance without further notice to you unless your prior authenticated SWIFT/telex notice to the contrary could be received by us. Meanwhile, holding documents as your disposal. Cost of this message will be for you're A/C. I/B Dept." (emphasis added)
CS did not comply with a request by BB to refund the amount received in reimbursement of the value of the documents paid. It has evidence that the applicant instructed BB to accept the documents.
BB's position:
The documents had been refused by reference to Article 14 of UCP 500. The reference to this Article implies that BB itself refuses the documents and is therefore entitled not to take up the documents and not to honour them, even if the applicant accepts the documents. The sentence underlined above does not have any bearing on BB's rights to take up or refuse the documents. The sentence, in referring to "their payment" clearly refers to payment by the issuing bank's customer, which has not happened. The reference to acceptance is a reference to acceptance of the bill by the issuing bank's customer and is understood to mean payment by the customer on the accepted due date. In any event, the sentence was a unilateral statement. It cannot constitute any contract. No reliance by the beneficiary on the statement was expected by the issuing bank, and no reliance could reasonably be placed on it by the beneficiary. The statement was merely an indication of a possible solution which depended upon eventual agreement among applicant, beneficiary and also issuing bank; if the discrepancies were accepted and the bills would be paid by the applicant, the issuing bank might consider releasing the documents to the applicant without further referral to the beneficiary. If the issuing bank chooses to release the documents, it then incurs a liability to the beneficiary. The issuing bank remains free to decide if it wishes to incur the liability.
CS's position:
The documents had been refused by reference to Article 14 of UCP 500. The sentence underlined above implies that BB has already made its decision not to refuse but to accept the documents should the applicant accept them. As the applicant did accept the documents, BB no longer had the right to refuse the documents, and as such CS is not committed to refund the amount received. If the issuing bank states that the documents will be released if the applicant accepts the documents and the applicant does so accept them, the issuing bank's irrevocable commitment to honour the documents, which has been in existence since it issued the credit, is emphasized. The arrangement between the applicant and the issuing bank as to when and how the documents will be released is irrelevant. If it is the issuing bank's intention to relieve itself from the irrevocable commitment, it must expressly state so, namely, that it is its intention not to treat the documents tendered according to the Articles of UCP but to treat them on a collection basis. Such action would, of course, need the approval of the beneficiary and/or the negotiating/confirming bank.
We, BB and CS, ask the officers of the Banking Commission to consider which one of the interpretations above is correct.
Conclusion/Analysis
Analysis and conclusion
BB provided CS with a notice of rejection in accordance with Article 14 of UCP 500. This rejection stated the discrepancies which had been observed (and we are advised that there is no dispute with regard to one of the discrepancies) and that the documents were held at the disposal of CS. In addition to the above, the rejection notice included reference to the fact that BB were referring same to the applicant and should the discrepancies be accepted (by the applicant's) documents would be released against his (applicant's) payment/acceptance without further reference to CS unless CS gave BB prior instructions by authenticated telex or SWIFT (emphasis in brackets added). CS holds evidence that the applicant provided BB with an instruction to accept the documents but BB has not complied.
In previous ICC Opinions, the Banking Commission has stated that the receipt of a waiver from the applicant does not bind the issuing bank to honour the documents. ICC is also aware of a number of banks incorporating wording into the rejection notices similar to that quoted above, whereby 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.
This action is against the principles of sub-Article 14(d)(ii), where the issuing bank is required to hold the documents at the disposal of the presenter. An issuing bank releasing documents without approval of the presenter, and the beneficiary having found another buyer for those goods would face the risk to which such actions may give rise.
The clause in the rejection notice reads "released against their payment/acceptance …". This infers that if the applicant provides covering funds BB will release the documents and advise CS (CS having already been reimbursed), and if the transaction was under usance BB would release against the applicant's agreement to pay at maturity or cover his account in the meantime. So what is the effect of the waiver being issued by the applicant? The rejection notice referred to release against payment/acceptance. This would be a condition in addition to the acceptance of the discrepancies. If BB did not receive satisfaction with regard to "payment/acceptance", then the receipt of the waiver for the discrepancies would not be sufficient to bind it to pay. However, the wording (and intent) of rejection notices incorporating such words is that the issuing bank will honour upon receipt of the waiver. To this extent we have considerable sympathy for the position of CS.
This kind of dispute should be directed towards the ICC DOCDEX panels rather than to the Banking Commission for an Opinion.
From the Unpublished queries of the ICC Banking Commission
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
From Rule and Articles UCP 500 Article 14; sub-Article 14(d)(ii)
Query
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 Query
This is a joint submission by Bank B (BB), Country H and Bank C, Country S (CS). Issue CS as advising bank did also negotiate documents under a letter of credit issued by BB. The documents contained at least one undisputed discrepancy. Therefore, BB refused the documents by means of sending a SWIFT message to CS with the following wording: "LC … Your ref … Documents for … Drawn under our Doc. Credit No. … Documents received with following discrepancy(ies): 1. B/L issued and signed not as per Article 23(a)(i) of UCP 500 2. One copy each of invoice and specification list not marked 'original' as per Art.20 of UCP 500. This advice constitutes our refusal in accordance with Article 14 of UCP 500. We are referring same to the applicant. Should the discrepancy(ies) be accepted, documents will be released against their payment/acceptance without further notice to you unless your prior authenticated SWIFT/telex notice to the contrary could be received by us. Meanwhile, holding documents as your disposal. Cost of this message will be for you're A/C. I/B Dept." (emphasis added)
CS did not comply with a request by BB to refund the amount received in reimbursement of the value of the documents paid. It has evidence that the applicant instructed BB to accept the documents.
BB's position:
The documents had been refused by reference to Article 14 of UCP 500. The reference to this Article implies that BB itself refuses the documents and is therefore entitled not to take up the documents and not to honour them, even if the applicant accepts the documents. The sentence underlined above does not have any bearing on BB's rights to take up or refuse the documents. The sentence, in referring to "their payment" clearly refers to payment by the issuing bank's customer, which has not happened. The reference to acceptance is a reference to acceptance of the bill by the issuing bank's customer and is understood to mean payment by the customer on the accepted due date. In any event, the sentence was a unilateral statement. It cannot constitute any contract. No reliance by the beneficiary on the statement was expected by the issuing bank, and no reliance could reasonably be placed on it by the beneficiary. The statement was merely an indication of a possible solution which depended upon eventual agreement among applicant, beneficiary and also issuing bank; if the discrepancies were accepted and the bills would be paid by the applicant, the issuing bank might consider releasing the documents to the applicant without further referral to the beneficiary. If the issuing bank chooses to release the documents, it then incurs a liability to the beneficiary. The issuing bank remains free to decide if it wishes to incur the liability.
CS's position:
The documents had been refused by reference to Article 14 of UCP 500. The sentence underlined above implies that BB has already made its decision not to refuse but to accept the documents should the applicant accept them. As the applicant did accept the documents, BB no longer had the right to refuse the documents, and as such CS is not committed to refund the amount received. If the issuing bank states that the documents will be released if the applicant accepts the documents and the applicant does so accept them, the issuing bank's irrevocable commitment to honour the documents, which has been in existence since it issued the credit, is emphasized. The arrangement between the applicant and the issuing bank as to when and how the documents will be released is irrelevant. If it is the issuing bank's intention to relieve itself from the irrevocable commitment, it must expressly state so, namely, that it is its intention not to treat the documents tendered according to the Articles of UCP but to treat them on a collection basis. Such action would, of course, need the approval of the beneficiary and/or the negotiating/confirming bank.
We, BB and CS, ask the officers of the Banking Commission to consider which one of the interpretations above is correct.
Conclusion/Analysis
Analysis and conclusion
BB provided CS with a notice of rejection in accordance with Article 14 of UCP 500. This rejection stated the discrepancies which had been observed (and we are advised that there is no dispute with regard to one of the discrepancies) and that the documents were held at the disposal of CS. In addition to the above, the rejection notice included reference to the fact that BB were referring same to the applicant and should the discrepancies be accepted (by the applicant's) documents would be released against his (applicant's) payment/acceptance without further reference to CS unless CS gave BB prior instructions by authenticated telex or SWIFT (emphasis in brackets added). CS holds evidence that the applicant provided BB with an instruction to accept the documents but BB has not complied.
In previous ICC Opinions, the Banking Commission has stated that the receipt of a waiver from the applicant does not bind the issuing bank to honour the documents. ICC is also aware of a number of banks incorporating wording into the rejection notices similar to that quoted above, whereby 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.
This action is against the principles of sub-Article 14(d)(ii), where the issuing bank is required to hold the documents at the disposal of the presenter. An issuing bank releasing documents without approval of the presenter, and the beneficiary having found another buyer for those goods would face the risk to which such actions may give rise.
The clause in the rejection notice reads "released against their payment/acceptance …". This infers that if the applicant provides covering funds BB will release the documents and advise CS (CS having already been reimbursed), and if the transaction was under usance BB would release against the applicant's agreement to pay at maturity or cover his account in the meantime. So what is the effect of the waiver being issued by the applicant? The rejection notice referred to release against payment/acceptance. This would be a condition in addition to the acceptance of the discrepancies. If BB did not receive satisfaction with regard to "payment/acceptance", then the receipt of the waiver for the discrepancies would not be sufficient to bind it to pay. However, the wording (and intent) of rejection notices incorporating such words is that the issuing bank will honour upon receipt of the waiver. To this extent we have considerable sympathy for the position of CS.
This kind of dispute should be directed towards the ICC DOCDEX panels rather than to the Banking Commission for an Opinion.
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Release of discrepant documents
I quote below another unpublished ICC opinion on this subject :
"from the Unpublished Queries of the ICC Banking Commission
Whether an issuing bank, after serving notice of rejection, has the right to dispose of documents to the applicant, if the presenter has not approved
From Rule and Articles UCP500 Sub-Articles 14(c), 14(d)(i) and (ii) and 14(e)
Query
Whether an issuing bank, after serving notice of rejection, has the right to dispose of documents to the applicant, if the presenter has not approved
Query
Does an issuing bank, after rejecting a set of documents under a L/C issued by it and serving notice of rejection in accordance with Article 14 , have the right to dispose of documents to the applicant if that applicant provides a waiver of discrepancy(ies), this disposal of documents being without the receipt of approval or further instructions from the presenter?
Should an issuing bank, before releasing the documents, revert to the negotiating bank for its approval?
Conclusion/Analysis
Analysis and conclusion
Sub-Articles 14(c), 14(d)(i)(ii) and 14(e) read (respectively):
·"If the Issuing Bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the Credit it may in its sole judgement approach the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in sub-Article 13(b)";
·"If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decided 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";
·"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";
·"If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank and/or Confirming Bank, if any, shall be precluded from claiming that the documents are not in accordance with the terms and conditions of the Credit."
An issuing bank, under sub- Article 14 (c), has the option, in its sole discretion, of approaching the applicant for a waiver of discrepancies prior to giving a notice of rejection, provided it does so within the reasonable time requirements of UCP. In the event that documents are rejected, Article 14 requires the rejection notice from issuing bank and/or the confirming bank to include a statement that the documents are being held at the disposal of the presenter or that they are being returned. If an issuing bank states: "Documents held at your risk and disposal", it should not release such documents until it has the approval of the presenters to the settlement. Should it, nevertheless, have released the documents, and should the presenter and/or beneficiary object on the basis that they may have found an alternative buyer, the issuing bank may find itself liable for any claims."
The last paragraph clearly gives direction on the standard procedure to be adopted in the event of the issuing bank seeking a waiver, i.e. to quote part of the last paragraph "it should not release such documents until it has the approval of the presenters to the settlement".
"from the Unpublished Queries of the ICC Banking Commission
Whether an issuing bank, after serving notice of rejection, has the right to dispose of documents to the applicant, if the presenter has not approved
From Rule and Articles UCP500 Sub-Articles 14(c), 14(d)(i) and (ii) and 14(e)
Query
Whether an issuing bank, after serving notice of rejection, has the right to dispose of documents to the applicant, if the presenter has not approved
Query
Does an issuing bank, after rejecting a set of documents under a L/C issued by it and serving notice of rejection in accordance with Article 14 , have the right to dispose of documents to the applicant if that applicant provides a waiver of discrepancy(ies), this disposal of documents being without the receipt of approval or further instructions from the presenter?
Should an issuing bank, before releasing the documents, revert to the negotiating bank for its approval?
Conclusion/Analysis
Analysis and conclusion
Sub-Articles 14(c), 14(d)(i)(ii) and 14(e) read (respectively):
·"If the Issuing Bank determines that the documents appear on their face not to be in compliance with the terms and conditions of the Credit it may in its sole judgement approach the Applicant for a waiver of the discrepancy(ies). This does not, however, extend the period mentioned in sub-Article 13(b)";
·"If the Issuing Bank and/or Confirming Bank, if any, or a Nominated Bank acting on their behalf, decided 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";
·"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";
·"If the Issuing Bank and/or Confirming Bank, if any, fails to act in accordance with the provisions of this Article and/or fails to hold the documents at the disposal of, or return them to the presenter, the Issuing Bank and/or Confirming Bank, if any, shall be precluded from claiming that the documents are not in accordance with the terms and conditions of the Credit."
An issuing bank, under sub- Article 14 (c), has the option, in its sole discretion, of approaching the applicant for a waiver of discrepancies prior to giving a notice of rejection, provided it does so within the reasonable time requirements of UCP. In the event that documents are rejected, Article 14 requires the rejection notice from issuing bank and/or the confirming bank to include a statement that the documents are being held at the disposal of the presenter or that they are being returned. If an issuing bank states: "Documents held at your risk and disposal", it should not release such documents until it has the approval of the presenters to the settlement. Should it, nevertheless, have released the documents, and should the presenter and/or beneficiary object on the basis that they may have found an alternative buyer, the issuing bank may find itself liable for any claims."
The last paragraph clearly gives direction on the standard procedure to be adopted in the event of the issuing bank seeking a waiver, i.e. to quote part of the last paragraph "it should not release such documents until it has the approval of the presenters to the settlement".
Release of discrepant documents
The topic is very interesting. I agree with Mr. Jeremy (and the ICC unpublished opinion - referred to by Brasbasah and Jeremy). I would like to make a questionnaire to investigate if beneficiries would like to see this condition? If they do, it is fine. Any beneficiary who finds it (deceiting, unjust, etc...), would ask for an amendment.
[edited 8/29/01 4:14:07 PM: clarity]
[edited 8/29/01 4:14:07 PM: clarity]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Release of discrepant documents
Jeremy's comments on the opposition to his "standard clause" reminds me of an old joke at the time when Guinness Light was introduced - A guy went into a pub and asked for a pint of the new drink. The barman, obviously exasperated, says "You must be the tenth person I've told to-day - we don't stock it. There is no demand for it."
In item 1 of Jeremy's response, he says that his clause does not remove the requirement to give notice (Art 14 d), but then contradicts this by saying "except the requirement to state we are holding the documents to the presenter’s order".
Again in item 2, Jeremy admits that alleged discrepant documents would be released to the applicant upon the authority of the applicant, instead of the authority of the beneficiary, as required by Art. 14 d ii.
In item 3, Jeremy is undoubtedly correct in saying that the documentary process is accelerated, but at the possible expense of the beneficiary, since he is not given the option to seek another buyer in the event of alleged discrepancies.
For the benefit of bankers who may not have regular contact with all parties in the L/C chain, might I say that beneficiaries conclude a sales contract with the applicant, in advance of the issue of the L/C, which would usually include details of the price, terms of shipment, documents to be presented under the L/C etc. These are the things that such beneficiaries expect to check. In my experience they (bene) never ask for a clause as used by Jeremy and therefore do not expect to see it. Neither have I seen such requests from applicants. Jeremy is correct in saying that it is the responsibility of the beneficiary to check L/Cs upon receipt for agreement, but I feel that to the less experienced beneficiary, this is a trap which he is unlikely to recognise and goes against the spirit of the UCP, and the instruction in Art 14 dii.
When Jeremy states in item 8 that the bene gains in most instances, one must conclude from this that there are some instances when the bene either does not gain or loses. In my opinion, if because of this clause, the bene loses control of release of the (alleged discrepant) documents, then he loses in every case, even if not always financially. Commercial decisions are often based on trust (or the lack of) and I know of many beneficiary companies who would prefer to suffer a financial loss than release product to an applicant who tried to take unfair advantage of a trivial documentary discrepancy.
Perhaps I have misunderstood Jeremy who states in item 9 that he gives the beneficiary some options, but if the applicant immediately takes up allegedly discrepant documents without prior referral to the bene, the bene's options are reduced to zero.
In item 1 of Jeremy's response, he says that his clause does not remove the requirement to give notice (Art 14 d), but then contradicts this by saying "except the requirement to state we are holding the documents to the presenter’s order".
Again in item 2, Jeremy admits that alleged discrepant documents would be released to the applicant upon the authority of the applicant, instead of the authority of the beneficiary, as required by Art. 14 d ii.
In item 3, Jeremy is undoubtedly correct in saying that the documentary process is accelerated, but at the possible expense of the beneficiary, since he is not given the option to seek another buyer in the event of alleged discrepancies.
For the benefit of bankers who may not have regular contact with all parties in the L/C chain, might I say that beneficiaries conclude a sales contract with the applicant, in advance of the issue of the L/C, which would usually include details of the price, terms of shipment, documents to be presented under the L/C etc. These are the things that such beneficiaries expect to check. In my experience they (bene) never ask for a clause as used by Jeremy and therefore do not expect to see it. Neither have I seen such requests from applicants. Jeremy is correct in saying that it is the responsibility of the beneficiary to check L/Cs upon receipt for agreement, but I feel that to the less experienced beneficiary, this is a trap which he is unlikely to recognise and goes against the spirit of the UCP, and the instruction in Art 14 dii.
When Jeremy states in item 8 that the bene gains in most instances, one must conclude from this that there are some instances when the bene either does not gain or loses. In my opinion, if because of this clause, the bene loses control of release of the (alleged discrepant) documents, then he loses in every case, even if not always financially. Commercial decisions are often based on trust (or the lack of) and I know of many beneficiary companies who would prefer to suffer a financial loss than release product to an applicant who tried to take unfair advantage of a trivial documentary discrepancy.
Perhaps I have misunderstood Jeremy who states in item 9 that he gives the beneficiary some options, but if the applicant immediately takes up allegedly discrepant documents without prior referral to the bene, the bene's options are reduced to zero.
Release of discrepant documents
My responses, expressed in a personal capacity, to the above are:
T.O.
I cannot see any comparison between issuing a credit that fundamentally departs from the principles contained in Articles 2 and 9 of UCP500, and modifying one element of a sub-Article, that also happens to be generally in beneficiaries’ interests. Secondly, you refer to ‘customers’, seemingly as if you are using the term to mean ‘beneficiaries’ (apologies if I’ve misunderstood). However, I believe the issuing bank’s ‘customer’ is -in law- the applicant (as they are the issuing bank’s ‘principal’) and not the beneficiary. Overall, this is as far as I’m prepared to comment on the matters you raise, as I do not see them as being germane to the main matter under discussion (given that I cannot see that it is seriously arguable that the specific practice I am espousing is unethical in any shape or form- see below), although I appreciate that you do.
HATEMSHEHAB
Apologies, but it is not clear to me what is the relevance of this opinion. My impression is that it deals with a situation where the issuing bank seeks to modify the provisions of sub-Article 14dii -for the first time- in the ‘refusal notice’, rather than the credit itself, which is -of course- a very different matter. I quite accept that if the credit ‘terms and conditions’ do not modify the provisions of sub-Article 14ii, then the issuing bank cannot then seek to do so after documents have been presented.
LAURENCE BACON
Apologies, but it is also not clear to me what is the relevance of this opinion. My impression is that it deals with a situation where the issuing bank has sent a ‘refusal notice’ in fully accordance with sub-Article 14dii, and therefore I have no quarrel with it. As I have already explained, a ‘refusal notice’ under a credit where the relevant element of sub-Article 14dii had been modified would not state documents were being held to the order of the presenter etc.
As to your other views, I must say (with due respect) that I find them most perplexing. Although a long winded way, I shall deal with them item by item:
1. I did not contradict myself, as I said:
‘Our standard clause does not remove the requirement to give a full notice per sub-Article 14d, EXCEPT the requirement to state we are holding the documents to the presenter’s order etc.’ [emphasis added]
2. I certainly do ‘admit’ that alleged discrepant documents would be released to the applicant upon the authority of the applicant, instead of the authority of the beneficiary, as required by Art. 14 d ii. That is the whole point of the exercise.
3. I fail to see how the fact that the beneficiary is not given the option to seek another buyer in the event of alleged discrepancies is a disadvantage for the beneficiary. They have contracted with the applicant to provide goods against (ultimate) payment under the credit, the availability provisions of which should reflect the contract. If they receive such payment, where is the ‘loss’, in the true sense of the word? The fact that the beneficiary may have found another buyer willing to pay a higher price is not a ‘loss’.
I would also make the following additional observation: to avoid falling foul of sub-Article 14e very often ‘refusal notices’ are sent by banks before the applicant has either been consulted, or had time to respond to the issuing bank, regarding discrepant documents. This is because while sub-Article 14c allows an issuing bank ‘in its sole judgement [to] approach the Applicant for a waiver of the discrepancy(ies)’, ‘This does not, however, extend the period mentioned in sub-Article 13 (b)’. Therefore, the fact that the issuing bank has ‘refused’ the documents does not mean that the applicant has. Consequently, by seeking another buyer for the goods, the beneficiary may well be in breach of their contract with the applicant as the applicant may well wish to take delivery of the goods, and thus to take up the documents, per the contract terms. Thus, the beneficiary looking for another buyer may well do more financial harm than good.
4. I try to avoid talking in absolutes, as one can ‘paint oneself into a corner’ by so doing, although the way these discussions are going I am being forced to! Therefore, one cannot necessarily ‘conclude from this that there are some instances when the bene either does not gain or loses’. But even if this is -in fact- the case (of which I am highly sceptical), it is not the issuing bank’s concern.
5. I am at a total loss to see how if a beneficiary is paid/will be paid in accordance with the underlying contract, as reflected in the credit availability provisions, ‘he loses in every case, even if not always financially’ or how the applicant is taking ‘unfair advantage of a trivial documentary discrepancy.’
6. I agree absolutely that ‘if the applicant immediately takes up allegedly discrepant documents without prior referral to the bene, the bene's options are reduced to zero’, and this is because of the simple fact the beneficiary has been/will be paid in accordance with the underlying contract, as reflected in the credit availability provisions
In conclusion, there is not any ‘trap’ for the beneficiary!
GENERAL
I am left with the impression that my views are regarded as grand heresy/high treason/a thought crime, and that because of this there is a refusal by some to analyse dispassionately what I am saying, in the light of general contractual principles. I am left feeling much as I imagine Galileo (I think it was he) must have felt before the Roman Inquisition, having to justify his claim that the earth is round and not flat.
Toodlepip!
T.O.
I cannot see any comparison between issuing a credit that fundamentally departs from the principles contained in Articles 2 and 9 of UCP500, and modifying one element of a sub-Article, that also happens to be generally in beneficiaries’ interests. Secondly, you refer to ‘customers’, seemingly as if you are using the term to mean ‘beneficiaries’ (apologies if I’ve misunderstood). However, I believe the issuing bank’s ‘customer’ is -in law- the applicant (as they are the issuing bank’s ‘principal’) and not the beneficiary. Overall, this is as far as I’m prepared to comment on the matters you raise, as I do not see them as being germane to the main matter under discussion (given that I cannot see that it is seriously arguable that the specific practice I am espousing is unethical in any shape or form- see below), although I appreciate that you do.
HATEMSHEHAB
Apologies, but it is not clear to me what is the relevance of this opinion. My impression is that it deals with a situation where the issuing bank seeks to modify the provisions of sub-Article 14dii -for the first time- in the ‘refusal notice’, rather than the credit itself, which is -of course- a very different matter. I quite accept that if the credit ‘terms and conditions’ do not modify the provisions of sub-Article 14ii, then the issuing bank cannot then seek to do so after documents have been presented.
LAURENCE BACON
Apologies, but it is also not clear to me what is the relevance of this opinion. My impression is that it deals with a situation where the issuing bank has sent a ‘refusal notice’ in fully accordance with sub-Article 14dii, and therefore I have no quarrel with it. As I have already explained, a ‘refusal notice’ under a credit where the relevant element of sub-Article 14dii had been modified would not state documents were being held to the order of the presenter etc.
As to your other views, I must say (with due respect) that I find them most perplexing. Although a long winded way, I shall deal with them item by item:
1. I did not contradict myself, as I said:
‘Our standard clause does not remove the requirement to give a full notice per sub-Article 14d, EXCEPT the requirement to state we are holding the documents to the presenter’s order etc.’ [emphasis added]
2. I certainly do ‘admit’ that alleged discrepant documents would be released to the applicant upon the authority of the applicant, instead of the authority of the beneficiary, as required by Art. 14 d ii. That is the whole point of the exercise.
3. I fail to see how the fact that the beneficiary is not given the option to seek another buyer in the event of alleged discrepancies is a disadvantage for the beneficiary. They have contracted with the applicant to provide goods against (ultimate) payment under the credit, the availability provisions of which should reflect the contract. If they receive such payment, where is the ‘loss’, in the true sense of the word? The fact that the beneficiary may have found another buyer willing to pay a higher price is not a ‘loss’.
I would also make the following additional observation: to avoid falling foul of sub-Article 14e very often ‘refusal notices’ are sent by banks before the applicant has either been consulted, or had time to respond to the issuing bank, regarding discrepant documents. This is because while sub-Article 14c allows an issuing bank ‘in its sole judgement [to] approach the Applicant for a waiver of the discrepancy(ies)’, ‘This does not, however, extend the period mentioned in sub-Article 13 (b)’. Therefore, the fact that the issuing bank has ‘refused’ the documents does not mean that the applicant has. Consequently, by seeking another buyer for the goods, the beneficiary may well be in breach of their contract with the applicant as the applicant may well wish to take delivery of the goods, and thus to take up the documents, per the contract terms. Thus, the beneficiary looking for another buyer may well do more financial harm than good.
4. I try to avoid talking in absolutes, as one can ‘paint oneself into a corner’ by so doing, although the way these discussions are going I am being forced to! Therefore, one cannot necessarily ‘conclude from this that there are some instances when the bene either does not gain or loses’. But even if this is -in fact- the case (of which I am highly sceptical), it is not the issuing bank’s concern.
5. I am at a total loss to see how if a beneficiary is paid/will be paid in accordance with the underlying contract, as reflected in the credit availability provisions, ‘he loses in every case, even if not always financially’ or how the applicant is taking ‘unfair advantage of a trivial documentary discrepancy.’
6. I agree absolutely that ‘if the applicant immediately takes up allegedly discrepant documents without prior referral to the bene, the bene's options are reduced to zero’, and this is because of the simple fact the beneficiary has been/will be paid in accordance with the underlying contract, as reflected in the credit availability provisions
In conclusion, there is not any ‘trap’ for the beneficiary!
GENERAL
I am left with the impression that my views are regarded as grand heresy/high treason/a thought crime, and that because of this there is a refusal by some to analyse dispassionately what I am saying, in the light of general contractual principles. I am left feeling much as I imagine Galileo (I think it was he) must have felt before the Roman Inquisition, having to justify his claim that the earth is round and not flat.
Toodlepip!