ICC Digital Library Forum

THE CASE:
A) bank 'AAA' (issuing bank) issued an l/c in favour of an exporter available with bank 'BBB'(advising and paying bank)by payment.

B) the exporter presented the documents to bank 'BBB' who mad a payment by debiting account of issuing bank with itself .

C) the issuing bank upon checking documents found out a discrepancy and accordingly decided to refuse the documents so the documents are putting at disposal of the paying bank and requesting to recredit the issuing bank's account.

D) the paying bank (BBB) referring to beneficiary and asked them to refund the proceeds.

now the question is whether the bank BBB as paying bank has the right of recourse to beneficary and its action can meet the ucp or in a correct custom banking rules
i thank you for giving me your opinion in respect of above mentiond case
m.mahmoodi
[edited 11/8/01 3:40:41 PM]

My personal opinion, without responsibility/liability and assuming that Bank B agrees with the discrepancy, is:

1. This is a question of law, presumably in this case Iranian law.

2. I have heard the argument that under English law a bank that has paid discrepant documents may be able to recover the funds from the beneficiary on the basis of ‘payment under mistake of fact’. However, I am not aware of any case law on the subject.

3. I could see sub-Article 13b being used by the beneficiary/their lawyers as an argument against any refund.

4. Also, in the case of a confirming bank, there is sub-Article 14e. This effectively states that if such a bank has failed to reject the documents per sub-Article 14d it ‘shall be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit’.

5. In this situation I would urgently be trying to get the beneficiary to get the applicant to take up the documents.

Please note the above is drafted on the assumption I am addressing a banker.





[edited 11/8/01 4:33:16 PM]

I tend to agree with J SMITH that the question of recourse to the beneficiary is a matter that has to be looked into in view of the national law; commercial papers or bill of exchange act. This is particularly true if the paying bank has not indicated that its payment is under reserve or indemnity.

The UCP 500 particularly deals without recourse issues in confirmed L/Cs and L/Cs available with negotiation.

The issue could take further legal complications if the paying bank has exercised any right of set off against the beneficiary. The paying bank may find it difficult to peruse such proceeds, which are paid in effect in favour of the bank rather than the beneficiary to settle debts or overdue payment. In the light of assignment of proceeds, which is irrevocable in its nature, the beneficiary, may find solid grounds to fight his case against the bank.

Therefore, I believe the issue relates to the legal systems in place, the nature of the contractual relations between the beneficiary and the paying bank and the trend prevailing in the judicial system towards the banking practices.