Laurence,
I respond as follows to your ‘postings’:
1. The new practice was introduced to enable processing efficiencies, linked to the introduction of new computer software, to be made (I am afraid I cannot be more specific than that).
2. You say that ‘The effect of Jeremy's clause is to reduce the controls inherent in UCP to URC, while enabling the banks to charge for UCP’. For this to be so, it would seem to me that the documents would have to be released without any responsibility on the part of the issuing bank for (ultimate) payment. However, the ‘new’ approach does not -I believe- allow this.
Article 14 seems to authorise, once discrepancies have been identified, the issuing bank (A) to contact the applicant, (B) to accept the applicant’s waiver, (C) not therefore to send a ‘refusal’ message and (D) to release the documents to the applicant (against the issuing bank’s payment/payment undertaking), provided the relevant time limit(s) is observed. To me, all any bank adopting the ‘new’ approach is doing is extending this Article 14 authority beyond despatch of the ‘refusal’ message. In other words, the issuing bank is still -to me- accepting full responsibility, under the credit, for (ultimate) payment if documents are released to the applicant post-despatch of the ‘refusal’ message. Thus, I cannot see any connection with URC.
3. It is for the reasons given in 2. above that I am genuinely at a loss to understand your, or anyone else’s objections, to the ‘new’ approach, except -with due respect- on the basis of a simple ‘gut’ objection to anything that deviates from previous practice (not that I take the view that all ‘gut’ reactions are automatically wrong).
Jeremy.
[edited 9/10/01 2:06:26 PM]
Release of discrepant documents
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Release of discrepant documents
Jeremy,
I am sorry if my brief analogy to URC was not clear. The similarities I have in mind are that if we compare allegedly discrepant documents including your clause, forwarded under UCP 500, to URC, we find that the buyer can choose in both cases whether or not to accept documents, without reference to the seller. If we accept the principle espoused in your clause whereby one ignores the instruction in Article 14d ii to hold documents at the disposal of the presenter or return them to him, this not only alters the permitted action of the issuing bank, but also that of the negotiating bank. The principle of this clause would allow the negotiating bank to forward allegedly discrepant documents to the issuing bank without allowing the beneficiary any option to correct them (contrary to Article 14 d i). This is similar to the sending of documents received from the principal, unchecked, by the remitting bank to the presenting bank under URC, in that in both cases the seller does not have an option to correct documents once given to the negotiating or remitting bank.
I would draw your attention to the specific wording of Article 14. Section b compels the issuing bank to decide whether or not to refuse documents. Section c states that the Issuing bank MAY approach the applicant for a waiver. Section d ii states that the issuing bank MUST hold documents at the disposal of, or return them to the presenter. The fact that the wording of section c precedes d may lead one to conclude that actions of the issuing bank must follow the same sequence. In my opinion this is not necessarily so, but I would welcome your and others' opinions. I take this view because section c is optional whereas section d is not and (d) should follow as a direct result of the decision enforced by section b. As the issuing bank is not compelled to seek a waiver, but is compelled to hold documents or return them to the presenter, it seems apparent to me that section 14 d takes priority over section c.
I appreciate your candour in stating that this deviates from previous practice. All I ask is that you consider more carefully the good reasons why the previous practice existed for so long. I also suggest that this differs from current practice, as evidenced by the lack of support for your position from other bankers. I understand that you may be under pressure from your IT Dept. to adopt this and I agree that it would certainly speed the processing of documentation, but I suggest that you stand to lose business proportionate to the amount of disgruntled beneficiaries named in your DCs.
Laurence A. J. Bacon
I am sorry if my brief analogy to URC was not clear. The similarities I have in mind are that if we compare allegedly discrepant documents including your clause, forwarded under UCP 500, to URC, we find that the buyer can choose in both cases whether or not to accept documents, without reference to the seller. If we accept the principle espoused in your clause whereby one ignores the instruction in Article 14d ii to hold documents at the disposal of the presenter or return them to him, this not only alters the permitted action of the issuing bank, but also that of the negotiating bank. The principle of this clause would allow the negotiating bank to forward allegedly discrepant documents to the issuing bank without allowing the beneficiary any option to correct them (contrary to Article 14 d i). This is similar to the sending of documents received from the principal, unchecked, by the remitting bank to the presenting bank under URC, in that in both cases the seller does not have an option to correct documents once given to the negotiating or remitting bank.
I would draw your attention to the specific wording of Article 14. Section b compels the issuing bank to decide whether or not to refuse documents. Section c states that the Issuing bank MAY approach the applicant for a waiver. Section d ii states that the issuing bank MUST hold documents at the disposal of, or return them to the presenter. The fact that the wording of section c precedes d may lead one to conclude that actions of the issuing bank must follow the same sequence. In my opinion this is not necessarily so, but I would welcome your and others' opinions. I take this view because section c is optional whereas section d is not and (d) should follow as a direct result of the decision enforced by section b. As the issuing bank is not compelled to seek a waiver, but is compelled to hold documents or return them to the presenter, it seems apparent to me that section 14 d takes priority over section c.
I appreciate your candour in stating that this deviates from previous practice. All I ask is that you consider more carefully the good reasons why the previous practice existed for so long. I also suggest that this differs from current practice, as evidenced by the lack of support for your position from other bankers. I understand that you may be under pressure from your IT Dept. to adopt this and I agree that it would certainly speed the processing of documentation, but I suggest that you stand to lose business proportionate to the amount of disgruntled beneficiaries named in your DCs.
Laurence A. J. Bacon
Release of discrepant documents
It is very interesting to see how this issues has become such a 'hot potatoe'.
UCP 500 sub article 14d (ii) makes it clear that the refusal 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.
So the issuing banks refusal notice must state whether it is holding or returning - there is no other option provided for in UCP for the refusal notice.
So, I am not in favour of any such practice 'appearing' in a refusal notice.
However, there is nothing whatsoever wrong with an issuing bank including such a clause at the time it issues a Credit. It fact it brings considerable benefits for all parties concerned.
First, it does not in any way take away from or weaken the Issuing Banks undertaking to settle against complying documents.
If documents comply the presenter can rely on the undertaking. The core
concept of
LC's
If documents do not comply it will be clear to the beneficiary
that the undertaking of the Issuing Bank is no longer enforceable - which
is always the case.
3) The issuing bank in including this clause 'up front' is clearly stating at time of
issuance
(avoiding any misunderstanding concerning a situation not
covered by UCP)
that if they release 'discrepant' documents to the applicant
then the Issuing Bank will be deemed to have taken up the documents and
assume settlement liability per LC.
I think it is of benefit to the beneficiary to have this stated
clearly up front in LC at time of issuance.
In reality, when an exporter has shipped goods and presents documents they want the money. It is highly unlikely (and something I have never experienced having authorised issuance of thousands of LC's) that the beneficiary would want the docs back instead of settlement. However, I guess there has been some lone cases or otherwise this would not be an issue now.
In any event up front in the LC is absolutely fine in my book. It my view it is a benefit to the beneficiary but in any event if the ben does not like it they do not need to accept it.
It does not in any way weaken the undertaking inherent in the LC. It just adds clarity to an area not addressed in UCP
Regards
Vin
UCP 500 sub article 14d (ii) makes it clear that the refusal 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.
So the issuing banks refusal notice must state whether it is holding or returning - there is no other option provided for in UCP for the refusal notice.
So, I am not in favour of any such practice 'appearing' in a refusal notice.
However, there is nothing whatsoever wrong with an issuing bank including such a clause at the time it issues a Credit. It fact it brings considerable benefits for all parties concerned.
First, it does not in any way take away from or weaken the Issuing Banks undertaking to settle against complying documents.
If documents comply the presenter can rely on the undertaking. The core
concept of
LC's
If documents do not comply it will be clear to the beneficiary
that the undertaking of the Issuing Bank is no longer enforceable - which
is always the case.
3) The issuing bank in including this clause 'up front' is clearly stating at time of
issuance
(avoiding any misunderstanding concerning a situation not
covered by UCP)
that if they release 'discrepant' documents to the applicant
then the Issuing Bank will be deemed to have taken up the documents and
assume settlement liability per LC.
I think it is of benefit to the beneficiary to have this stated
clearly up front in LC at time of issuance.
In reality, when an exporter has shipped goods and presents documents they want the money. It is highly unlikely (and something I have never experienced having authorised issuance of thousands of LC's) that the beneficiary would want the docs back instead of settlement. However, I guess there has been some lone cases or otherwise this would not be an issue now.
In any event up front in the LC is absolutely fine in my book. It my view it is a benefit to the beneficiary but in any event if the ben does not like it they do not need to accept it.
It does not in any way weaken the undertaking inherent in the LC. It just adds clarity to an area not addressed in UCP
Regards
Vin
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Release of discrepant documents
Just few points that I would like to reiterate:
1. The wording of articles 13 & 14 are very decisive and firm, therefore I don’t think there is a room for such a clause to be incorporated in the advice of refusal.
2. In case such a clause is incorporated then the whole transaction has become in a way a collection pending the waiver of the applicant after having handcuffed the beneficiary with this clause.
3. The inclusion of such clause in the L/C does not solve the problem, because there is a bug in it. How could we state that discrepant documents are held at the disposal of the presenter and at the same time we, knowingly, are acting in contrary to this as we will deliver the documents to the applicant without an authorization from the presenter? how would one return the documents and at the same time retain them?
unless we give a third option that we will retain the documents untill we receive the waiver from the applicant not later than ...!!! Again what about the "reasonable period; 7-days, do we need more?
Isn’t it true that an L/C must have a built-in, shock–proof crap detector” to quote Hemingway” whenever possible?
[edited 9/11/01 8:35:11 AM]
1. The wording of articles 13 & 14 are very decisive and firm, therefore I don’t think there is a room for such a clause to be incorporated in the advice of refusal.
2. In case such a clause is incorporated then the whole transaction has become in a way a collection pending the waiver of the applicant after having handcuffed the beneficiary with this clause.
3. The inclusion of such clause in the L/C does not solve the problem, because there is a bug in it. How could we state that discrepant documents are held at the disposal of the presenter and at the same time we, knowingly, are acting in contrary to this as we will deliver the documents to the applicant without an authorization from the presenter? how would one return the documents and at the same time retain them?
unless we give a third option that we will retain the documents untill we receive the waiver from the applicant not later than ...!!! Again what about the "reasonable period; 7-days, do we need more?
Isn’t it true that an L/C must have a built-in, shock–proof crap detector” to quote Hemingway” whenever possible?
[edited 9/11/01 8:35:11 AM]
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AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
Release of discrepant documents
After all that has been discussed, I haven’t much to add. However, as it is clear from LeoCullen comments posted on Sept 05, ICC Banking Commission has addressed a similar issue. It stated that the incorporation of such clause in the credit would effectively create a new rule for handling the refusal for documents. It neither objected nor discouraged usage of such clause in credits. Just to repeat what LeoCullen has earlier said, this opinion can be viewed by searching "questions concerning notices of refusal" in the site search.
I tend to agree with Mr. JSmith's rational.
I tend to agree with Mr. JSmith's rational.
Release of discrepant documents
Laurence,
1. I agree the buyer can choose whether or not to accept documents, without reference to the seller. But despite all you’ve said to date, I simply cannot see why this matters, particularly as this situation pertains anyway prior to the sending of a ‘refusal’ message.
2. To me, all one is doing is modifying that part of sub-Article 14dii that requires the ISSUING bank to state either it is holding the documents at the disposal of the presenter or is returning them to presenter in the ‘refusal’ message. Therefore, I am at a loss as to how it can be argued that the NOMINATED bank can ‘forward allegedly discrepant documents to the issuing bank without allowing the beneficiary any option to correct them’. In my view, if a nominated bank believes that the issuing bank’s modification of sub-Article 14dii does indeed extend to it, then the most it can do -having sent a ‘refusal’ message to the beneficiary that reflects this modification- is to contact the issuing bank (at the nominated bank’s expense) for authority to take up the documents. However, I personally, if handling documents as nominated bank under a credit issued by another bank, that contained the ‘new’ approach, would apply sub-Article 14d to the letter, i.e. without modification.
3. I agree with your apparent reading that, unless the credit otherwise states, contacting the applicant per sub-Article 14c is optional, whereas sub-Article 14d is mandatory.
4. My bank’s decision was taken, and implemented (without problem to date), about a year ago. There is not currently any intention to review it and, I would add, I do not see any reason to do so.
Hatem Shehab,
A. I agree with your point 1.
B. I do not understand the basis for your assertion in your point 2. The issuing bank’s obligation to take up complying documents, or to release discrepant documents to the applicant only on the issuing bank’s responsibility per the availability provisions of the credit, are unchanged.
C. Your point 3: As the issuing bank has modified the relevant element of sub-Article 14dii it should not state it is holding the documents at the presenter’s disposal. One option is for the issuing bank to say documents will be handled per the provisions of the credit.
D. The time limit(s) laid down in Article 13 and 14 are unaffected.
E. I’m not quite sure what point your last paragraph is intended to make, so I shall not comment.
Jeremy.
1. I agree the buyer can choose whether or not to accept documents, without reference to the seller. But despite all you’ve said to date, I simply cannot see why this matters, particularly as this situation pertains anyway prior to the sending of a ‘refusal’ message.
2. To me, all one is doing is modifying that part of sub-Article 14dii that requires the ISSUING bank to state either it is holding the documents at the disposal of the presenter or is returning them to presenter in the ‘refusal’ message. Therefore, I am at a loss as to how it can be argued that the NOMINATED bank can ‘forward allegedly discrepant documents to the issuing bank without allowing the beneficiary any option to correct them’. In my view, if a nominated bank believes that the issuing bank’s modification of sub-Article 14dii does indeed extend to it, then the most it can do -having sent a ‘refusal’ message to the beneficiary that reflects this modification- is to contact the issuing bank (at the nominated bank’s expense) for authority to take up the documents. However, I personally, if handling documents as nominated bank under a credit issued by another bank, that contained the ‘new’ approach, would apply sub-Article 14d to the letter, i.e. without modification.
3. I agree with your apparent reading that, unless the credit otherwise states, contacting the applicant per sub-Article 14c is optional, whereas sub-Article 14d is mandatory.
4. My bank’s decision was taken, and implemented (without problem to date), about a year ago. There is not currently any intention to review it and, I would add, I do not see any reason to do so.
Hatem Shehab,
A. I agree with your point 1.
B. I do not understand the basis for your assertion in your point 2. The issuing bank’s obligation to take up complying documents, or to release discrepant documents to the applicant only on the issuing bank’s responsibility per the availability provisions of the credit, are unchanged.
C. Your point 3: As the issuing bank has modified the relevant element of sub-Article 14dii it should not state it is holding the documents at the presenter’s disposal. One option is for the issuing bank to say documents will be handled per the provisions of the credit.
D. The time limit(s) laid down in Article 13 and 14 are unaffected.
E. I’m not quite sure what point your last paragraph is intended to make, so I shall not comment.
Jeremy.
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Release of discrepant documents
The following are two opinions of the ICC Banking Commission on the same subject matter. I found them in a way inconsistent and may lead to different approaches. The ICC is perhaps required to comment on the subject and clarify to us their opinion on this
QUERY 1.
If the letter of credit incorporated wording as described in your enquiry, or similar, this would effectively create a new rule for handling the refusal of documents. The ability to delete or amend Articles of the UCP is in line with Article 1 of the UCP 500 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 his agreement to the condition expressed in the credit.
The effect of any such clause included within a credit would be subject to local law.
QUERY 2.
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
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 that the documents were held at the disposal of CS ... 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 … 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.
QUERY 1.
If the letter of credit incorporated wording as described in your enquiry, or similar, this would effectively create a new rule for handling the refusal of documents. The ability to delete or amend Articles of the UCP is in line with Article 1 of the UCP 500 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 his agreement to the condition expressed in the credit.
The effect of any such clause included within a credit would be subject to local law.
QUERY 2.
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
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 that the documents were held at the disposal of CS ... 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 … 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.
Release of discrepant documents
Query 1: the portion quoted of ICC Document 470/TA.496rev deals with where the issuing bank modifies Article 14 in the credit, i.e. at the time of issue. Whereas the portion quoted of ICC Document 470/TA.449 (Query 2) deals -I believe- with where the issuing bank seeks to modify Article 14 after documents have been presented, i.e. not at the time of issue of the credit. Therefore, I personally do not see any inconsistency.
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Release of discrepant documents
Jeremy,
to clarify my comment about the Nominated bank, if one allows a bank to forward documents without reference to the presenter concerning alleged discrepancies, the bank in question can be the issuing bank or nominated bank. Instructions given in Article 14 d i & ii include both issuing & nominated banks.
to clarify my comment about the Nominated bank, if one allows a bank to forward documents without reference to the presenter concerning alleged discrepancies, the bank in question can be the issuing bank or nominated bank. Instructions given in Article 14 d i & ii include both issuing & nominated banks.
Release of discrepant documents
Laurence,
I recognise that Article 14 (unmodified) is of equal applicability to a nominated bank as an issuing bank. But what I am saying is that:
1. Because an issuing bank has modified how sub-Article 14dii affects it, this does not seem to me to automatically mean that such modification applies to the nominated bank as well (i.e. the way the nominated bank should handle documents).
2. However, if -contrary to 1. above- the modification does actually automatically apply to the nominated bank, I still cannot see how it allows the nominated bank to forward documents that it believes to be discrepant, without the authority of the presenter, unless -of course- the issuing bank has given authority to the nominated bank to take up the documents.
I must stress that the approach I am advocating does not -I believe- affect the fundamental principle that the documents remain the property of the presenter/beneficiary, and therefore cannot be despatched/released without the presenter’s/beneficiary’s consent, prior to them having been taken up for their value and in accordance with the availability provisions of the credit.
Jeremy.
[edited 9/11/01 5:36:49 PM]
I recognise that Article 14 (unmodified) is of equal applicability to a nominated bank as an issuing bank. But what I am saying is that:
1. Because an issuing bank has modified how sub-Article 14dii affects it, this does not seem to me to automatically mean that such modification applies to the nominated bank as well (i.e. the way the nominated bank should handle documents).
2. However, if -contrary to 1. above- the modification does actually automatically apply to the nominated bank, I still cannot see how it allows the nominated bank to forward documents that it believes to be discrepant, without the authority of the presenter, unless -of course- the issuing bank has given authority to the nominated bank to take up the documents.
I must stress that the approach I am advocating does not -I believe- affect the fundamental principle that the documents remain the property of the presenter/beneficiary, and therefore cannot be despatched/released without the presenter’s/beneficiary’s consent, prior to them having been taken up for their value and in accordance with the availability provisions of the credit.
Jeremy.
[edited 9/11/01 5:36:49 PM]