When discrepant documents are presented to the issuing bank, the issuing bank in accordance with article 14d(II) should advise the presenter of 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.
Would it be appropriate for an issuing bank to insert a clause in a letter of credit, for discrepant documents that are held at the disposal of the presenter, stating that the issuing bank, at its discretion, will release discrepant documents to the applicant, in case the applicant waives the discrepancy, without seeking the approval from the presenter provided the presenter did not instruct the issuing bank otherwise prior to the issuing banks action of releasing the documents? Would such clause in the LC be in conflict with article 14d(II)?
Release of discrepant documents
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AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
Release of discrepant documents
PRACTICE DISCOURAGED BY ICC
This is a banking practice (or malpractice) discouraged by ICC Banking Commission.
Before payment, the documents belong to the presenter (either the negotiating bank or the beneficiary) and without the disposal authority given by the presenter, the issuing bank has no right to dispose of the documents in a manner it prefers.
A BANK AS AN INDEPENDENT AND NEUTRAL PAYMASTER
In other words, to make it convenient to its customer, the applicant, the issuing bank, by adding such terms and conditions in the LC, has lost its neutrality and its independent position as a paymaster that the beneficiary can rely upon.
The road to evil is often paved with goodwill.
We are from www.tolee.com
[edited 7/22/01 6:03:46 PM]
This is a banking practice (or malpractice) discouraged by ICC Banking Commission.
Before payment, the documents belong to the presenter (either the negotiating bank or the beneficiary) and without the disposal authority given by the presenter, the issuing bank has no right to dispose of the documents in a manner it prefers.
A BANK AS AN INDEPENDENT AND NEUTRAL PAYMASTER
In other words, to make it convenient to its customer, the applicant, the issuing bank, by adding such terms and conditions in the LC, has lost its neutrality and its independent position as a paymaster that the beneficiary can rely upon.
The road to evil is often paved with goodwill.
We are from www.tolee.com
[edited 7/22/01 6:03:46 PM]
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AbdulkaderBazara
- Posts: 256
- Joined: Fri Apr 05, 2019 5:15 pm
Release of discrepant documents
If the clause is inserted in the LC at the time of issuance as part of the terms and conditions of the credit, and thus the beneficiary should have been aware of it prior to performing under the credit, would it then still be considered a unilateral action? Would inserting such clause in the LC still be consider in conflict with the UCP? By inserting expressions such as "Except as otherwise expressly stated this credit is subject to UCP 500" in the LC, wouldn't the terms and conditions of the credit prevail over the UCP?
Shouldn't the beneficiary request for an amendment if he / she doesn't want the issuing bank to act in this manner? Or would it be considered that the clause will be in most cases unnoticed by the beneficiary or the beneficiary would not be aware of the consequence and thus the issuing bank would be considered, somehow, unfair to the beneficiary in inserting the clause?
[edited 5/26/01 6:01:49 AM]
Shouldn't the beneficiary request for an amendment if he / she doesn't want the issuing bank to act in this manner? Or would it be considered that the clause will be in most cases unnoticed by the beneficiary or the beneficiary would not be aware of the consequence and thus the issuing bank would be considered, somehow, unfair to the beneficiary in inserting the clause?
[edited 5/26/01 6:01:49 AM]
Release of discrepant documents
BANKS SHOULD SUPPORT FAIR TRADE
Even if this is inserted in the LC as a special condition, it may be rejected by certain courts of law because it is against the principle of fair trade, which healthy growth of international trade relies upon.
To go further, can we add in the LC that the issuing bank will pay provided the applicant has the money to reimburse it?
The UCP 500 allows the trading community to add some special conditions to override the UCP 500 only to the extent that it is in line with the basic principles of fair trade and UCP doctrines and not further. LC is not, and also should not be used as a "mouse trap" (the longest run play in the world at the West End of London).
BANKS SHOULD SAFEGUARD THEIR IMAGE
To earn the respect of the trading community and the trust from its customers, a bank should not do those things that are discouraged or denounced by the ICC Banking Commission.
The issue is whether you wish to be seen in the marketplace as a gentleman or as a bad guy?
Of course such request may come from a power applicant. The right way to handle this is not to yield but to educate the customers that this is not what LC should be used.
A MATTER OF CHOICES
Take our consultant company as an example, from time to time, we are approached by international fraudsters (with their identities under cover of course) to update their "How to Cheat People" manual, or by some unethical traders to draft an LC whereby the applicant may dishonour if he so wishes.
We would not do such things not because we are afraid of the law but rather as a Buddhist, there are certain things that I should not do, no matter how lucrative the reward is and how slight the chance is to get caught.
So I do not wish to say anything more for those who wish to do it and try to legalise or rationalise what they well know is not fair to others.
The best answer should come from our own conscience.
We are from http://www.tolee.com
[edited 2/2/02 9:04:13 PM]
Even if this is inserted in the LC as a special condition, it may be rejected by certain courts of law because it is against the principle of fair trade, which healthy growth of international trade relies upon.
To go further, can we add in the LC that the issuing bank will pay provided the applicant has the money to reimburse it?
The UCP 500 allows the trading community to add some special conditions to override the UCP 500 only to the extent that it is in line with the basic principles of fair trade and UCP doctrines and not further. LC is not, and also should not be used as a "mouse trap" (the longest run play in the world at the West End of London).
BANKS SHOULD SAFEGUARD THEIR IMAGE
To earn the respect of the trading community and the trust from its customers, a bank should not do those things that are discouraged or denounced by the ICC Banking Commission.
The issue is whether you wish to be seen in the marketplace as a gentleman or as a bad guy?
Of course such request may come from a power applicant. The right way to handle this is not to yield but to educate the customers that this is not what LC should be used.
A MATTER OF CHOICES
Take our consultant company as an example, from time to time, we are approached by international fraudsters (with their identities under cover of course) to update their "How to Cheat People" manual, or by some unethical traders to draft an LC whereby the applicant may dishonour if he so wishes.
We would not do such things not because we are afraid of the law but rather as a Buddhist, there are certain things that I should not do, no matter how lucrative the reward is and how slight the chance is to get caught.
So I do not wish to say anything more for those who wish to do it and try to legalise or rationalise what they well know is not fair to others.
The best answer should come from our own conscience.
We are from http://www.tolee.com
[edited 2/2/02 9:04:13 PM]
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larryBacon
- Posts: 689
- Joined: Fri Apr 05, 2019 5:26 pm
Release of discrepant documents
Article 1 of UCP states that the UCP is binding on all parties "unless otherwise expressly stipulated in the credit". The insertion in the L/C of the above-mentioned clause regarding non-advice of discrepancy acts as an escape clause for the issuing bank; something which was never intended. Despite Article 1 being misused in this way, unfortunately there is nothing in UCP to prevent this. We have all seen clauses in L/Cs permitting delays in payment of a few days ostensibly because of delays inherent in the banking system or due to governmental controls, but what is there to stop issuing banks from inserting clauses to allow delays of months instead of days ? The answer is that it would not be commercially acceptable and such a bank would lose out to competitor banks. In this case I have used an extreme example to demonstrate how an unreasonable delay would be rejected by the potential beneficiary, but what if the unavoidable delay was exceeded by a few days or only one day ? The beneficiary is unlikely to reject or even notice the difference, despite it costing him interest which the bank may be gaining.
Therefore I agree with T. O. Lee that such bad practices may not be disallowed by the UCP, but the ICC tries to discourage them.
Perhaps for future versions of UCP we should include clauses which cannot be rescinded. Such clauses, for example, would forbid unilateral decisions of an issuing bank to pass discrepant documents to applicants without permission of the presenter. It might also forbid confirming banks from awaiting reimbursement before payment.
The merits or otherwise of such future clauses in UCP can be debated. The present version of UCP can be misused, intentionally or otherwise.
Laurence A. J. Bacon
Therefore I agree with T. O. Lee that such bad practices may not be disallowed by the UCP, but the ICC tries to discourage them.
Perhaps for future versions of UCP we should include clauses which cannot be rescinded. Such clauses, for example, would forbid unilateral decisions of an issuing bank to pass discrepant documents to applicants without permission of the presenter. It might also forbid confirming banks from awaiting reimbursement before payment.
The merits or otherwise of such future clauses in UCP can be debated. The present version of UCP can be misused, intentionally or otherwise.
Laurence A. J. Bacon
Release of discrepant documents
I think that if the condition is inserted at the time of issuance of credit, it will not violate the intentions of the UCP. Eventually in all cases the beneficiary will be pleased to have his documents taken up and paid for. If the beneficiary does not agree to the condition (for example if a commodity whose price is fluctuating is invovled, with a possibilty of price increase) then the beneficiary shall seek an amendment prior to effecting shipment.
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Release of discrepant documents
From my banking experience in trade finance, I have encountered numerous cases where the issuing bank falls in the trap of “protecting his customers interests” in accepting discrepant documents.
1. In some cases the applicant’s understanding of the seven banking days is not clear, therefore the best thing is to alert him from the issuing bank by stipulating in the advice of receipt of discrepant documents that failing to notify in writing the acceptance or rejection of such documents within the permissible period; say four days from the issuing bank advise to applicant will be deemed to be a rejection of those documents. As evident from this, it has solely to do with the contractual relationship between the applicant and the issuing bank, and it should be the concern of the issuing bank to channelize this relationship with his customers rather than trying to “import it arbitrarily to the l/c”
2. The phrase “ unless otherwise stated” must be prudently used to reflect the fiduciary role of the issuing bank in the letter of credit transaction. A bank cannot issue an irrevocable letter of credit and at the same time stipulate that payment will be effected upon receipt of an approval letter from the applicant stating that goods have been received in excellent condition”. It is necessary for the issuing bank to see his role in facilitating a trade deal in favour of both parties; applicant and beneficiary. I know that some may argue that this is not practical as we care about our customers more, but this can lead to grave mistakes when the issuing bank tries to blindly protect its customers at any cost.
3. Mr. Barasbasah thinks that the beneficiary will be happy that the applicant eventually accepts his documents. Unfortunately, this is not true in all cases. In one case, we detected a discrepancy in an L/C documents and the applicant was contacted for a waiver. The applicant informed us that he is willing accept the discrepancy provided he gets USD 15000 in discount. We refused to indulge in such a bargain. After 12 days the applicant informed us that he is willing to accept the documents despite any discrepancy therein and with no discount. We informed him that documents are held with us at the disposal of the confirming bank and we are contacting them for approval of release. I know that most of the banks go for direct release but for this particular case we have sensed that the applicant was trying to twist the arm of the beneficiary. Luckily, our doubts were true. The response of the beneficiary through the confirming bank was very brief; “ you are not authorized for whatsoever reason to release documents, further instructions will follow". The further instructions was to release documents to another party for USD 20000 in discount. The beneficiary wanted TO penalise the applicant for this bargain as their relationship goes back to ten years.
4. Some banks have another malepractice regarding the refusal notice. They go for what they call first advise of refusal whereby they advise discrepancies and inform the presenting bank they are contacting applicant for a waiver. Then they issue final refusal whereby they advice the presenter of the final decision. Such banks assume that the first one is to protect them in case they forget to send an advise of discrepancies to the presenter.
5. I think the issue raised by AbdulkaderB can be complicated further if the issuing bank is financing a bid which his applicant has been awarded. The credit department is separate from operations department that issues letters of credits. Therefore, there might be assignment of proceeds and even a performance bond. If the applicant refuses the documents in such a transaction, it means that he will loose the bid and the bond will be called and if he accepts the discrepant documents and later has to provide the goods with any defects the bond will be called and the assignments of proceeds of the bond will be in jeopardy. Therefore the interest of applicant and the bank might be affected.
Finally I agree with the response of Mr. T.O Lee and Laurence Bacon for their reply to the issue.
[edited 7/22/01 1:15:03 PM]
[edited 7/22/01 10:55:48 PM]
1. In some cases the applicant’s understanding of the seven banking days is not clear, therefore the best thing is to alert him from the issuing bank by stipulating in the advice of receipt of discrepant documents that failing to notify in writing the acceptance or rejection of such documents within the permissible period; say four days from the issuing bank advise to applicant will be deemed to be a rejection of those documents. As evident from this, it has solely to do with the contractual relationship between the applicant and the issuing bank, and it should be the concern of the issuing bank to channelize this relationship with his customers rather than trying to “import it arbitrarily to the l/c”
2. The phrase “ unless otherwise stated” must be prudently used to reflect the fiduciary role of the issuing bank in the letter of credit transaction. A bank cannot issue an irrevocable letter of credit and at the same time stipulate that payment will be effected upon receipt of an approval letter from the applicant stating that goods have been received in excellent condition”. It is necessary for the issuing bank to see his role in facilitating a trade deal in favour of both parties; applicant and beneficiary. I know that some may argue that this is not practical as we care about our customers more, but this can lead to grave mistakes when the issuing bank tries to blindly protect its customers at any cost.
3. Mr. Barasbasah thinks that the beneficiary will be happy that the applicant eventually accepts his documents. Unfortunately, this is not true in all cases. In one case, we detected a discrepancy in an L/C documents and the applicant was contacted for a waiver. The applicant informed us that he is willing accept the discrepancy provided he gets USD 15000 in discount. We refused to indulge in such a bargain. After 12 days the applicant informed us that he is willing to accept the documents despite any discrepancy therein and with no discount. We informed him that documents are held with us at the disposal of the confirming bank and we are contacting them for approval of release. I know that most of the banks go for direct release but for this particular case we have sensed that the applicant was trying to twist the arm of the beneficiary. Luckily, our doubts were true. The response of the beneficiary through the confirming bank was very brief; “ you are not authorized for whatsoever reason to release documents, further instructions will follow". The further instructions was to release documents to another party for USD 20000 in discount. The beneficiary wanted TO penalise the applicant for this bargain as their relationship goes back to ten years.
4. Some banks have another malepractice regarding the refusal notice. They go for what they call first advise of refusal whereby they advise discrepancies and inform the presenting bank they are contacting applicant for a waiver. Then they issue final refusal whereby they advice the presenter of the final decision. Such banks assume that the first one is to protect them in case they forget to send an advise of discrepancies to the presenter.
5. I think the issue raised by AbdulkaderB can be complicated further if the issuing bank is financing a bid which his applicant has been awarded. The credit department is separate from operations department that issues letters of credits. Therefore, there might be assignment of proceeds and even a performance bond. If the applicant refuses the documents in such a transaction, it means that he will loose the bid and the bond will be called and if he accepts the discrepant documents and later has to provide the goods with any defects the bond will be called and the assignments of proceeds of the bond will be in jeopardy. Therefore the interest of applicant and the bank might be affected.
Finally I agree with the response of Mr. T.O Lee and Laurence Bacon for their reply to the issue.
[edited 7/22/01 1:15:03 PM]
[edited 7/22/01 10:55:48 PM]
Release of discrepant documents
In front of me now I have an article by Dan Taylor titled "Examination of Documents, Waiver of Discrepancies and Notice Under UCP 500". It covers articles 13 and 14 and sheds light on the subject.
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hatemshehab
- Posts: 220
- Joined: Fri Apr 05, 2019 5:19 pm
Release of discrepant documents
CAN YOU FURNISH US WITH FURTHER DETAILS AS TO WHERE WE CAN VIEW THIS ARTICLE.
Release of discrepant documents
Dear Mr. Shehab
.
Copy of the article was distributed during "The Annual Survey of Letter of Credit Law and Pratice" - conducted by The IIBLP in Singapore during the period 12-13 July 2001. The article does not specifically address the point raised by Mr. AbdulKader but sheds light on articles 13 & 14. However I understand that there is an ICC opinion on the subject raised. The "unpublished" opinion could be found in this site by looking for:
(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)
.
Copy of the article was distributed during "The Annual Survey of Letter of Credit Law and Pratice" - conducted by The IIBLP in Singapore during the period 12-13 July 2001. The article does not specifically address the point raised by Mr. AbdulKader but sheds light on articles 13 & 14. However I understand that there is an ICC opinion on the subject raised. The "unpublished" opinion could be found in this site by looking for:
(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)