Sub-Art. 16 (c) (iii) (b) - Discrepant Documents, Waiver and Notice
Under sub-Art 16 (c) (iii) (b) the issuing bank has the option of “holding the documents until it receives a waiver from the applicant and agrees to accept it, …” Does the word “agrees” mean that if the applicant accepts the discrepant documents then the issuing bank must also agree to accept them, i.e., the possibility of rejection by the issuing bank here is not available?
Regards
Dimitri
Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
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DimitriScoufaridis
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KimChristensen
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Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
Dear Dimitri,
Usually it would most likely be so that when/if the applicant waives the discrepancies – then the issuing bank ”agrees” to accept that waiver.
However – as far as I understand it has been drafted this way in order to underline that at the end of the day it is the decision of the issuing bank whether to “maintain” the refusal or accept the waiver.
So event though the applicant waives the discrepancies – the issuing bank has the right to “maintain” the refusal.
Best regards
Kim
Usually it would most likely be so that when/if the applicant waives the discrepancies – then the issuing bank ”agrees” to accept that waiver.
However – as far as I understand it has been drafted this way in order to underline that at the end of the day it is the decision of the issuing bank whether to “maintain” the refusal or accept the waiver.
So event though the applicant waives the discrepancies – the issuing bank has the right to “maintain” the refusal.
Best regards
Kim
Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
Kim,
True, otherwise the CD would no longer be an independent undertaking.
Daniel
True, otherwise the CD would no longer be an independent undertaking.
Daniel
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DimitriScoufaridis
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Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
Kim,
Thanks for your input. As I understand it, the refusal notice contains three parts: A statement of refusal to honour or negotiate [Sub-Art 16 (c) (i)] and a discrepancy list [Sub-Art 16 (c) (ii)] and one of the four options mentioned under 16 (c) (iii) so the “maintenance” of refusal comes from the first part only [Sub-Art 16 (c) (i)] not from Sub-Art 16 (c) (iii) (b). Is it so?
Regards
Dimitri
Thanks for your input. As I understand it, the refusal notice contains three parts: A statement of refusal to honour or negotiate [Sub-Art 16 (c) (i)] and a discrepancy list [Sub-Art 16 (c) (ii)] and one of the four options mentioned under 16 (c) (iii) so the “maintenance” of refusal comes from the first part only [Sub-Art 16 (c) (i)] not from Sub-Art 16 (c) (iii) (b). Is it so?
Regards
Dimitri
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JudithAutié
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Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
I guess by my nature I'm a practical person, more than an theoretical one.
I have noted, after some 35 yrs of documentary credits, that final refusal of documents is due to
a) lack of sufficient funds for full payment of the documents presented (whether this be due to the applicant's default and the issuing bank's inability to obtain funds to cover it's committment, or the confirming bank's inability to obtain reimbursement from the issuing bank, for whatever reason if the confirming bank is the one refusing the documents)
or
b) a commercial problem between the applicant and the beneficiary.
or a combination of both reasons.
I know the pure hearted bankers will scream saying that an irrevocable undertaking can't be dependent on getting reimbursement, but in real life, it is usually the case for final refusals.
Therefore I find it difficult to see an issuing bank referring to the applicant for approval of discrepancies and then deciding on it's own not to accept the documents or the applicant's decision.
However Kim is right that the UCP rule was written so as to give the bank the final word, and as a banker, I can say that I do feel more secure that way, because sometimes the applicants want the banks to pay for their lack of discretion when chosing a commercial partner.
Now I await the howls of protest.
Regards
Judith
I have noted, after some 35 yrs of documentary credits, that final refusal of documents is due to
a) lack of sufficient funds for full payment of the documents presented (whether this be due to the applicant's default and the issuing bank's inability to obtain funds to cover it's committment, or the confirming bank's inability to obtain reimbursement from the issuing bank, for whatever reason if the confirming bank is the one refusing the documents)
or
b) a commercial problem between the applicant and the beneficiary.
or a combination of both reasons.
I know the pure hearted bankers will scream saying that an irrevocable undertaking can't be dependent on getting reimbursement, but in real life, it is usually the case for final refusals.
Therefore I find it difficult to see an issuing bank referring to the applicant for approval of discrepancies and then deciding on it's own not to accept the documents or the applicant's decision.
However Kim is right that the UCP rule was written so as to give the bank the final word, and as a banker, I can say that I do feel more secure that way, because sometimes the applicants want the banks to pay for their lack of discretion when chosing a commercial partner.
Now I await the howls of protest.
Regards
Judith
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DimitriScoufaridis
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Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
Judith,
I believe you hit the nail on the head. If the sequence of events is 1) refusal notice by the issuing bank 2) referral to applicant 3) acceptance of discrepancies by the applicant then should the issuing bank be allowed to refuse payment because of an internal credit problem or a commercial dispute? With such a practice the DC is turned into a mechanism for non-payment rather than a payment undertaking.
Regards
Dimitri
I believe you hit the nail on the head. If the sequence of events is 1) refusal notice by the issuing bank 2) referral to applicant 3) acceptance of discrepancies by the applicant then should the issuing bank be allowed to refuse payment because of an internal credit problem or a commercial dispute? With such a practice the DC is turned into a mechanism for non-payment rather than a payment undertaking.
Regards
Dimitri
Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
Dimitri & Judith,
I cannot see how anyone -as I infer you are suggesting- could object to the process of 1) issuing bank refuses per 16bii 2) issuing bank seeks waiver 3) waiver granted by applicant and 4) issuing bank refuses waiver (e.g. because of the applicant’s deteriorating creditworthiness) and indicates to presenter there is not any possibility of honour.
Once documents have been -correctly- identified as non-compliant and refused per the UCP the issuing bank’s irrevocable undertaking -in respect of the documents presented- is at an end. Any subsequent honour is purely discretionary. Therefore, I cannot see that it can possibly be suggested this undermines the fundamental nature of a credit.
Regards, Jeremy
I cannot see how anyone -as I infer you are suggesting- could object to the process of 1) issuing bank refuses per 16bii 2) issuing bank seeks waiver 3) waiver granted by applicant and 4) issuing bank refuses waiver (e.g. because of the applicant’s deteriorating creditworthiness) and indicates to presenter there is not any possibility of honour.
Once documents have been -correctly- identified as non-compliant and refused per the UCP the issuing bank’s irrevocable undertaking -in respect of the documents presented- is at an end. Any subsequent honour is purely discretionary. Therefore, I cannot see that it can possibly be suggested this undermines the fundamental nature of a credit.
Regards, Jeremy
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DimitriScoufaridis
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Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
Jeremy,
By completing step no. 1, the issuing bank is already providing its refusal. What is then the purpose of seeking a waiver from the applicant if it is to be followed by another refusal ?
Regards
Dimitri
By completing step no. 1, the issuing bank is already providing its refusal. What is then the purpose of seeking a waiver from the applicant if it is to be followed by another refusal ?
Regards
Dimitri
Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
Dimitri,
The reality is that when sending a notice of ‘refusal’ a bank is usually doing no more than saying that the documents are non-compliant and therefore -if an issuing / confirming bank- it has no obligation to take them up (UCP500) / honour them (UCP600). Were the UCP to reflect this reality there would be no requirement to talk in terms of ‘refusal’ at this stage in the ‘cycle’, i.e. before contacting the applicant for a waiver in the case of an issuing bank. However, as the UCP does not, banks are obliged to say they are ‘refusing’ documents when in fact -in the case of an issuing bank, for example- they are more than happy in the vast majority of cases to take up / honour if the applicant grants a waiver.
So, the answer to your question is that step 1 is simply to put the presenter on notice that the documents do not comply and step 2 is to advise the presenter whether or not an acceptable waiver to the non-compliance(s) has been granted.
Regards, Jeremy
The reality is that when sending a notice of ‘refusal’ a bank is usually doing no more than saying that the documents are non-compliant and therefore -if an issuing / confirming bank- it has no obligation to take them up (UCP500) / honour them (UCP600). Were the UCP to reflect this reality there would be no requirement to talk in terms of ‘refusal’ at this stage in the ‘cycle’, i.e. before contacting the applicant for a waiver in the case of an issuing bank. However, as the UCP does not, banks are obliged to say they are ‘refusing’ documents when in fact -in the case of an issuing bank, for example- they are more than happy in the vast majority of cases to take up / honour if the applicant grants a waiver.
So, the answer to your question is that step 1 is simply to put the presenter on notice that the documents do not comply and step 2 is to advise the presenter whether or not an acceptable waiver to the non-compliance(s) has been granted.
Regards, Jeremy
Sub-Art. 16 (c) (iii) (b)-Discrepant Documents, Waiver and N
Conceptually, this sub article authorizes the issuing bank to reverse its refusal before the presenter acts on the refusal by requesting return or other disposition of the documents. The fact that the reversal is preceded by an applicant waiver is not necessary to make the bank's reversal and honour effective.
That the applicant waived discrepancies and accepted the documents may be important in the underlying transaction, however, because the applicant-buyer may be required to accept and pay under his contractual and legal obligations to the beneficiary-seller outside the LC.
In any event, approaching the applicant for a waiver does not bind the issuing bank to waive discrepancies--either toward the beneficiary or the applicant--unless the issuing bank has made an unusual representation or promise to one or both of them.
That said, non LC experts are quick--too quick--to think that the decision to approach implies that the bank has already decided to accept the applicant's decision as its own. That's why the point is made in this sub article that the bank must accept after the applicant decides to waive.
Regards, Jim
That the applicant waived discrepancies and accepted the documents may be important in the underlying transaction, however, because the applicant-buyer may be required to accept and pay under his contractual and legal obligations to the beneficiary-seller outside the LC.
In any event, approaching the applicant for a waiver does not bind the issuing bank to waive discrepancies--either toward the beneficiary or the applicant--unless the issuing bank has made an unusual representation or promise to one or both of them.
That said, non LC experts are quick--too quick--to think that the decision to approach implies that the bank has already decided to accept the applicant's decision as its own. That's why the point is made in this sub article that the bank must accept after the applicant decides to waive.
Regards, Jim