WE HAVE RECEIVED THIS QUERY FROM AN ACQUAINTANCE. SINCE MOST OF THE BANKS APPLY SIMILAR PROCEDURE TO DOCUMENT REFUSAL NOTICE, I OPTED TO POST IT TO SHARE VIEWS WITH OTHERS ON THIS ISSUE.
QUOTE
Issuing bank: IB
confirming bank: CB
As per beneficiary’s instructions CB sent documents on September 26 for approval due
to following discrepancy: late shipment. Doccred matured on September 30 at
the counters of confirming bank.
On October 02, 2001 IB sent a MT 734 swift message stating documents at
disposal of confirming bank and that they are advising applicant for
approval.
On October 10, 2001 applicant presents a signed letter requesting IB to
lift reserves and inform to confirming bank.
Issuing bank informs applicant that in view doccred has matured they
shall not release reserves.
As per r267 (1997) more opinions of the ICC banking commission
the receipt of a waiver from the applicant, either direct or via the
beneficiary, does not bind the issuing bank to accept the documents. The
decision of whether or not to comply with the waiver is one for the issuing
bank to decide in its sole judgment
Is such opinion applicable in this case or having the issuing bank informing
that they have contacted the applicant for a waiver the issuing bank is bind
to accept the documents after the receipt of such waiver?
UNQUOTE
IS APPLICANT’S WAIVER BINDING
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
IS APPLICANT’S WAIVER BINDING
Dear Hatem,
Please clarify the exact wordings used in the refusal notice. Otherwise it is difficult to make any comment whether Articles 13 and 14 of UCP 500 are fully followed by the issuing bank.
ISSUING BANK HAS ABSOLUTE POWER FOR REFUSING WAIVER EVEN IF WAIVER ORIGINALLY REQUESTED BY THE ISSUING BANK
In the SBPED covering refusal notice, which is now under drafting stage, an issuing bank has the right to refuse a waiver from the applicant, although the applicant has been approached by the issuing bank previously, even if the DC is still valid.
The reason is that the DC payment undertaking is the issuing bank's and not the applicant's. Otherwise there is no need to open a DC.
ISP 98 Articles 5.05 & 5.06 (c) (iii) also say the same thing.
http://www.tolee.com
[edited 12/1/01 10:45:41 PM]
Please clarify the exact wordings used in the refusal notice. Otherwise it is difficult to make any comment whether Articles 13 and 14 of UCP 500 are fully followed by the issuing bank.
ISSUING BANK HAS ABSOLUTE POWER FOR REFUSING WAIVER EVEN IF WAIVER ORIGINALLY REQUESTED BY THE ISSUING BANK
In the SBPED covering refusal notice, which is now under drafting stage, an issuing bank has the right to refuse a waiver from the applicant, although the applicant has been approached by the issuing bank previously, even if the DC is still valid.
The reason is that the DC payment undertaking is the issuing bank's and not the applicant's. Otherwise there is no need to open a DC.
ISP 98 Articles 5.05 & 5.06 (c) (iii) also say the same thing.
http://www.tolee.com
[edited 12/1/01 10:45:41 PM]
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
IS APPLICANT’S WAIVER BINDING
To facilitate understanding my opinion on this issue, I would like to make an imaginary dialogue that would have happened between the issuing bank and the confirming bank.
The issuing bank addressing the confirming bank
Dear Mr. Confirming Bank
Upon the receipt of the documents presented by you we have found the following discrepancy; late shipment. Therefore we consider ourselves as have been fully complied with the requirements of article 14. In addition to that, our advice of refusal was transmitted to you within the permissible period stated in article 13b. As for the phrase that “we are advising applicant for approval” you may notice that article 14 c states that the issuing bank may approach the applicant for a waiver of discrepancies, which we have did, and that action did not hamper our liability towards you to provide you with our decision regarding the documents. It is a normal banking practice to approach the applicant and seek his opinion as to the fate of the documents and this should not be construed as willingness on our part to waive the discrepancies if the waiver of the applicant was forthcoming. In fact this peace of information is beneficial to you as it puts the onus on your side to intimate the beneficiary of such action taken by us. Therefore you may solicit the two parties to come to a compromise perhaps outside the credit itself. As for us, we deal with document and our part is over the moment the discrepant documents were presented under the credit.
Further, please note that the L/C has already expired and consequently our commitment thereunder has been released.
Dear Mr. Issuing Bank
Thanks for taking the time to explain the meaning of article 14 of UCP 500. Unfortunately your explanation does accurately reflect the requirements of that article. First of all we consider your refusal notice as insufficient to meet all the requirements stipulated under article 14 for many reasons foremost of them is that you have stated that documents are held at our disposal, and at the same time you stated that you are seeking the applicant approval of discrepancies therefore this infers that if the applicant provides a waiver, you are will release the documents to him. This can inevitably lead to the conclusion that you have failed to hold documents at our disposal. We are not so sure on whose disposal are the documents held? To who is the final say on their fate? Is it the applicant or the confirming bank?
The second reason is that although we understand the relationship between you and the applicant, this relationship does not relate to us. The advice of refusal should be unconditional and based on the documents themselves and must reflect your sole decision of such refusal. The very fact that you have referred to the applicant is an indication that you have no problem with approval provided you are covered by the applicant’s authorization to release the documents.
We have been informed by the beneficiary that the applicant believes that the discrepancy mentioned did not imply or affect a serious contractual default in order to withhold payment of the L/C. therefore you are requested to effect payment immediately without delay.
As for the expiration of the L/C, please note that the documents have been presented within the validity of the L/C and the place of validity was at our counters, therefore you cannot expect that the period of the reasonable time should be within the L/C validity.
Conclusion:
It is evident from the dialogue that many banks fell into the trap of inserting this phrase in the refusal advice. On the one hand they reject documents and hold them at the disposal of the presenting bank, but on the other hand a phrase such as “meanwhile we are contacting applicant for a waiver” holds open the possibility of acceptance upon waiver of the discrepancies by the applicant. In effect, as if the issuing bank is saying “ we have no problem with these discrepant documents as long as we receive a waiver from the applicant. However, to protect ourselves we are rejecting the documents as per article 14.”
The fact that there are different interpretations as the wording of the refusal notice by the issuing and the confirming bank, gives rise to ambiguity and doubt, which in the court of law is construed against the drafter of the advice.
Since the advice of refusal did not unequivocally put the documents at the disposal of the confirming bank, the preclusion clause as expressed in article 14, bars the issuing bank from asserting discrepancies under this L/C.
While I do have sympathy with the issuing bank’s position, I believe its position is wrong and it must pay the documents value.
Needless to mention that in the absence and without having a look on the exact wording of the original communications between both parties this answer should not be inclusive.
[edited 12/2/01 12:01:31 PM]
The issuing bank addressing the confirming bank
Dear Mr. Confirming Bank
Upon the receipt of the documents presented by you we have found the following discrepancy; late shipment. Therefore we consider ourselves as have been fully complied with the requirements of article 14. In addition to that, our advice of refusal was transmitted to you within the permissible period stated in article 13b. As for the phrase that “we are advising applicant for approval” you may notice that article 14 c states that the issuing bank may approach the applicant for a waiver of discrepancies, which we have did, and that action did not hamper our liability towards you to provide you with our decision regarding the documents. It is a normal banking practice to approach the applicant and seek his opinion as to the fate of the documents and this should not be construed as willingness on our part to waive the discrepancies if the waiver of the applicant was forthcoming. In fact this peace of information is beneficial to you as it puts the onus on your side to intimate the beneficiary of such action taken by us. Therefore you may solicit the two parties to come to a compromise perhaps outside the credit itself. As for us, we deal with document and our part is over the moment the discrepant documents were presented under the credit.
Further, please note that the L/C has already expired and consequently our commitment thereunder has been released.
Dear Mr. Issuing Bank
Thanks for taking the time to explain the meaning of article 14 of UCP 500. Unfortunately your explanation does accurately reflect the requirements of that article. First of all we consider your refusal notice as insufficient to meet all the requirements stipulated under article 14 for many reasons foremost of them is that you have stated that documents are held at our disposal, and at the same time you stated that you are seeking the applicant approval of discrepancies therefore this infers that if the applicant provides a waiver, you are will release the documents to him. This can inevitably lead to the conclusion that you have failed to hold documents at our disposal. We are not so sure on whose disposal are the documents held? To who is the final say on their fate? Is it the applicant or the confirming bank?
The second reason is that although we understand the relationship between you and the applicant, this relationship does not relate to us. The advice of refusal should be unconditional and based on the documents themselves and must reflect your sole decision of such refusal. The very fact that you have referred to the applicant is an indication that you have no problem with approval provided you are covered by the applicant’s authorization to release the documents.
We have been informed by the beneficiary that the applicant believes that the discrepancy mentioned did not imply or affect a serious contractual default in order to withhold payment of the L/C. therefore you are requested to effect payment immediately without delay.
As for the expiration of the L/C, please note that the documents have been presented within the validity of the L/C and the place of validity was at our counters, therefore you cannot expect that the period of the reasonable time should be within the L/C validity.
Conclusion:
It is evident from the dialogue that many banks fell into the trap of inserting this phrase in the refusal advice. On the one hand they reject documents and hold them at the disposal of the presenting bank, but on the other hand a phrase such as “meanwhile we are contacting applicant for a waiver” holds open the possibility of acceptance upon waiver of the discrepancies by the applicant. In effect, as if the issuing bank is saying “ we have no problem with these discrepant documents as long as we receive a waiver from the applicant. However, to protect ourselves we are rejecting the documents as per article 14.”
The fact that there are different interpretations as the wording of the refusal notice by the issuing and the confirming bank, gives rise to ambiguity and doubt, which in the court of law is construed against the drafter of the advice.
Since the advice of refusal did not unequivocally put the documents at the disposal of the confirming bank, the preclusion clause as expressed in article 14, bars the issuing bank from asserting discrepancies under this L/C.
While I do have sympathy with the issuing bank’s position, I believe its position is wrong and it must pay the documents value.
Needless to mention that in the absence and without having a look on the exact wording of the original communications between both parties this answer should not be inclusive.
[edited 12/2/01 12:01:31 PM]
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
IS APPLICANT’S WAIVER BINDING
We agree with Mr. Lee that in the absence of the exact wording of the advice of refusal it would be difficult to decide what is the correct course of action, therefore my response was based on the information available. If the exact wording is furnished, I will post it in the forum.
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
IS APPLICANT’S WAIVER BINDING
I received the exact text of messages sent by the issuing bank IB to the confirming bank CB.
1) Swift Free Format MT 799 Dated October 03, 2001.
“We have received documents with the following discrepancy: late shipment. We are contacting applicant for a waiver. Once applicant accepts discrepancy, we shall inform you. Meanwhile documents at your disposal and risk.”
2) Swift Free Format MT 799 Dated October 11, 2001
“We have informed again the discrepancies to the applicant which has informed
us that documents will be accepted approx. on the end of October due to goods have
not arrived at the destination port. Meanwhile documents at your disposal and risk.”
After the above messages, goods finally arrived at destination port. Applicant
requested the issuing bank to send the waiver and issuing bank did not accept it.
------------- CONCLUSION ------------
I think it is evident from these communications that the issuing bank has committed the “great sin for which he has to provide a financial apology."
HATEM SHEHAB
1) Swift Free Format MT 799 Dated October 03, 2001.
“We have received documents with the following discrepancy: late shipment. We are contacting applicant for a waiver. Once applicant accepts discrepancy, we shall inform you. Meanwhile documents at your disposal and risk.”
2) Swift Free Format MT 799 Dated October 11, 2001
“We have informed again the discrepancies to the applicant which has informed
us that documents will be accepted approx. on the end of October due to goods have
not arrived at the destination port. Meanwhile documents at your disposal and risk.”
After the above messages, goods finally arrived at destination port. Applicant
requested the issuing bank to send the waiver and issuing bank did not accept it.
------------- CONCLUSION ------------
I think it is evident from these communications that the issuing bank has committed the “great sin for which he has to provide a financial apology."
HATEM SHEHAB