If a Letter of Credit has expired, and a presentation is made after the expiry date , does a formal rejection under Article 14d still apply or, as the Letter of Credit is effectively 'dead', can payment be refused after 7 business days with no formal rejection.
I would be interested in your thoughts.
Alistair
Expired Letter of Credit
-
hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Expired Letter of Credit
Although there is no express article to state that since the credit is dead the seven days period does not apply, this fact is really implied since as you said the credit is no more, and therefore the bank is not obliged to act thereupon under UCP 500 if the documents were presented out the expiry date of the credit.
One thing to note, you should be aware of any indication on the presentation schedule that may state the following: “we certify that documents were presented within the validity of the credit” as it may happen that the presenting bank received the documents from the beneficiary within the expiry of the credit however negotiation date was on a later date, or it is possible that the beneficiary presented the documents after the expiry as per article 44 a.
One thing to note, you should be aware of any indication on the presentation schedule that may state the following: “we certify that documents were presented within the validity of the credit” as it may happen that the presenting bank received the documents from the beneficiary within the expiry of the credit however negotiation date was on a later date, or it is possible that the beneficiary presented the documents after the expiry as per article 44 a.
-
AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
Expired Letter of Credit
I believe it is safer for the bank to advise the presenter of the discrepancy (LC expired) within reasonable time.
If we look at the extremes, the presentation could have been made 5 minutes after the expiry of the credit (5 minutes after the bank's official banking hours on the day of expiry) or one year. Therefore, how fast we should act for an expired credit would depend on how far the presentation is made from the expiry date of the credit. I believe, in general, presentation under an expired credit should be considered as a discrepancy and the presenter has to be notified within a reasonable time whether the bank has taken up the documents or otherwise. This might not be covered explicitly under UCP 500 but if the bank doesn't act within reasonable time the presenter might have an upper hand under the applicable law.
If the bank doesn't want to check the documents under expired credit, it should advise the presenter that since the LC has expired it would not examine the documents and returning the set of documents unchecked. In case the LC is subsequently extended the bank would not, therefore, be precluded from checking the documents and raising some additional discrepancies.
The payment under the credit could be at sight or at a tenor, therefore, I believe it is not advisable to relate the documents rejection notification advice date to the presenter's expected payment date.
If we look at the extremes, the presentation could have been made 5 minutes after the expiry of the credit (5 minutes after the bank's official banking hours on the day of expiry) or one year. Therefore, how fast we should act for an expired credit would depend on how far the presentation is made from the expiry date of the credit. I believe, in general, presentation under an expired credit should be considered as a discrepancy and the presenter has to be notified within a reasonable time whether the bank has taken up the documents or otherwise. This might not be covered explicitly under UCP 500 but if the bank doesn't act within reasonable time the presenter might have an upper hand under the applicable law.
If the bank doesn't want to check the documents under expired credit, it should advise the presenter that since the LC has expired it would not examine the documents and returning the set of documents unchecked. In case the LC is subsequently extended the bank would not, therefore, be precluded from checking the documents and raising some additional discrepancies.
The payment under the credit could be at sight or at a tenor, therefore, I believe it is not advisable to relate the documents rejection notification advice date to the presenter's expected payment date.
Expired Letter of Credit
I very much agree with wise approach advised by Abdulkader. We also always follow the same pattern – there are situations where the presenter does not know whether the presentation was actually done in time or not, so one might get into big troubles if not following this safe rule.
Pavel Andrle
Pavel Andrle
Expired Letter of Credit
We remember that ICC Banking Commission has already given its opinion in one fo the answers to the queries that the bank needs not do anything if the (first) presentation made to the (first) bank is after expiry of the DC. Please make use of the search facilities provided by the DC Pro to get this opinion.
From risk management or operational efficiency point of view, spending 10 minutes in drafting a refusal notice is better than spending months and months on litigations afterwards.
www.tolee.com
From risk management or operational efficiency point of view, spending 10 minutes in drafting a refusal notice is better than spending months and months on litigations afterwards.
www.tolee.com
-
DimitriScoufaridis
- Posts: 85
- Joined: Fri Apr 05, 2019 5:17 pm
Expired Letter of Credit
I fully agree with Abdulkader. Despite the fact that the LC is dead, as a prudent banker, I would rather give a formal rejection under Article 14d.
Another good example to consider would be the case where a presentation is made on the day prior to the expiry date, several discrepancies are noted and the beneficiary finally submitting compliant documents after the expiry date. Such representation must be formally rejected too.
Another good example to consider would be the case where a presentation is made on the day prior to the expiry date, several discrepancies are noted and the beneficiary finally submitting compliant documents after the expiry date. Such representation must be formally rejected too.
Expired Letter of Credit
Thank you for your response T.O. and I fully agree with your sentiments.
I have had a look at the Opinions and cannot find anything on this. Do you know which opinion related to this?
I have had a look at the Opinions and cannot find anything on this. Do you know which opinion related to this?
Expired Letter of Credit
While I have not searched for it, I believe T.O. is correct in saying there is an opinion on the subject. This is based on Gary Collyer’s oral response when I raised this question with him in Amsterdam on the Annual Survey.
Personally, I do not see how anyone could argue that a party could have any obligations under an instrument/contract that has ceased to exist.
[edited 6/10/02 1:47:36 PM]
Personally, I do not see how anyone could argue that a party could have any obligations under an instrument/contract that has ceased to exist.
[edited 6/10/02 1:47:36 PM]
Expired Letter of Credit
Jeremy,
Thanks for your support, although not frequently.
This issue is but simple common sense. Can one enter the Suwon Stadium in South Korea to watch the Brazil v. Costa Rica game on 13th June 2002 with a ticket marked 11h June (Senegal v. Uruguay) also played at the Suwon Stadium that has not yet been utilised?
Could one be allowed to enter the Stadium if the security guards had failed to give him a refusal notice without delay?
The answer to this question should not be different eve if this World Cup 2002 ticket turned out to be a DC.
If we cannot find any ICC opinion in the DC Pro, we should contact Leo Cullen for assistance. He has been very helpful and very busy these days as he is a soccer fan too.
www.tolee.com
[edited 6/11/02 3:31:40 PM]
Thanks for your support, although not frequently.
This issue is but simple common sense. Can one enter the Suwon Stadium in South Korea to watch the Brazil v. Costa Rica game on 13th June 2002 with a ticket marked 11h June (Senegal v. Uruguay) also played at the Suwon Stadium that has not yet been utilised?
Could one be allowed to enter the Stadium if the security guards had failed to give him a refusal notice without delay?
The answer to this question should not be different eve if this World Cup 2002 ticket turned out to be a DC.
If we cannot find any ICC opinion in the DC Pro, we should contact Leo Cullen for assistance. He has been very helpful and very busy these days as he is a soccer fan too.
www.tolee.com
[edited 6/11/02 3:31:40 PM]