Can a bank refuse to receive documents

[JudithAutié]

The letter of credit stipulated that documents were to be dispatched to the issuing bank by ABC courier service. Due to difficulties with that company documents were dispatched by the negotiating bank through XYZ courier service. When XYZ tried to deliver the documents to the issuing bank, the issuing bank refused to take them. The issuing bank only accepted to receive the documents from XYZ after a delay of about 2 weeks. During that time, applicants were unable to take possession fo the goods, and storage costs were incurred.
Can the issuing bank refuse to receive the documents if they are not sent by the specified courier service?
Who is responsible for the storage costs?

[NigelHolt]

Bienvenu au (je présume que c’est masculin) DC-PRO ‘discussion forum’. Je me demande si vous êtes peut-être le/la premie(è)r(e) français(e) de l’utiliser (pourvu que vous soyez une française!).

My comments (en anglais!) without responsibility/liability are:

1. You have not stated what reason the issuing bank actually gave for refusing the documents. Although this is implied, I would have thought that at the time the documents were delivered by the courier the issuing bank would not have known that they even related to a credit, let alone the terms of the particular credit. Consequently, that the issuing bank would not have the advance knowledge to be able to refuse to take delivery for this reason.

2. The method of despatch chosen by, presumably, the nominated bank should not have any impact on the compliance of a presentation. Also, sub-Article 9a would seem to suggest that the beneficiary has the right to make direct presentation (for example therefore by hand delivery) to the issuing bank, even when there is a nominated bank. Therefore, the use of a different courier company (or no courier company at all) ought not to affect an issuing bank’s obligations -per sub-Article 9a- to take up a complying documents on their being tendered to the issuing bank, whether by any nominated bank or the beneficiary.

3. Ultimately, it would be a question of the governing law of the credit. However, I would have thought a court would award damages for any loss suffered by the applicant/nominated bank/beneficiary as a result of the issuing bank’s refusal to accept tender of the documents, if it were for the reason that the courier co specified in the credit had not been used.

J’espère que mes remarques ci-dessus vous aideront.

Salutations.
[edited 1/15/02 5:34:33 PM]

[JudithAutié]

Thanks for your quick opinion. By the way, I am une française (but to tell the truth of American origin).

I suspect that all documents or mail not received through the designated courier service was systematically refused, but I cannot be sure of this.

I believe that if something had happened to the documents when sent by XYZ courier service, it would have been negotiating bank's problem, for not having respected issuing bank's instructions. However this did not happen.
The issuing bank did not raise an irregularity about documents being sent by XYZ service, just didn't take delivery of them, causing the applicant to not be able to get the goods.

[AbdulkaderBazara]

The questions we should ask in this situation are as follows:
Has the applicant sustained any damage by having the dispatch of documents carried out by a courier different than that specified in the credit? Why should a beneficiary suffer if the nominated bank didn’t carry out the instructions specified in the credit? Who is responsible if the nominated / confirming bank did not follow the instruction of the issuing bank? Is it that of beneficiary or applicant? Article 18a & b provides the answers to that last two questions.

I don’t see any genuine reason why the issuing bank has refused taking delivery of the documents unless the bank is boycotting such courier company and has provided a reason for such boycott in the letter of credit.

[edited 1/15/02 8:33:44 PM]

[larryBacon]

There are distinct issues to examine here :

CHANGE OF COURIER COMPANY
If the negotiating bank decided to use a courier company other than that specified in the L/C, this is a discrepancy. Whether or not it makes any material difference to the execution of the sales contract or L/C is irrelevant. Would a bank accept a B/L issued by a carrier other than one nominated in the L/C ? In that case, it may be possible to establish the material difference, but the principle of rejecting the document because it does not comply with the specific instruction in the L/C is the same.

REFUSAL TO ACCEPT DOCUMENTS
The issuing bank should not refuse to accept documents by whatever means. Abdulkader's suggestion that it may be due to a boycott of the courier company which delivered (eventually) is entirely logical and may be linked to an exclusive contract with the company nominated in the L/C. Depending on the country involved bribery (or the lack of) may also be an issue contributing to the delay.

If the issuing bank accepts the documents as in order, it should be liable for costs to the beneficiary if there was any delay in payment due to this negligence.

Similarly the issuing bank should be liable to the applicant for resultant direct costs such as demurrage and possibly indirect costs such as loss of contingent contracts.

It is assumed that the delay of two weeks in delivering the documents was entirely due to the issuing bank. This may not be so. There may be intervening national holidays, force majeure, or the courier company may be partly responsible for the delay.

Laurence

[LeoCullen]

The issuing banks obligation to pay is dependent on the beneficiary presenting complying documents to the bank where the credit is available.

Its undertaking has nothing to do with how the documents are transported between the banks (which I assume in this case is specified in the reimbursement instructions)

It appears that the issuing bank has included a non-documentary condition in the credit and moreover this condition is aimed at the nominated bank - not even the beneficiary.

There is no basis, under a credit, for an issuing bank to refuse to accept delivery of documents.

From the information available, in my opinion the issuing bank should be responsible for the charges that arose as a result of their refusal to accept the documents from the courier service.

I have a further question – do you think that where the issuing bank refuses to accept delivery of the documents for a period of 2 weeks that the issuing bank should be precluded from claiming that the documents are not in compliance with the terms and conditions of the Credit?

[larryBacon]

The time allowed for the issuing bank to examine the documents is based, as per Article 13 b, on the day of receipt. If the bank refuses to receive them on a given day, they have not been received on that day and therefore that day cannot be the day of receipt. I suggest that such an action displays negligence on the part of the issuing bank, but this is an issue for local law rather than UCP.

Laurence

[PavelA]

The reasoning given by Mr. Cullen is very clear and correct. The suggestion that the usage of the different courier service is discrepancy acc. to art.13 UCP 500 is very far from the international standard banking practice.
Re. whether the issuing bank would be precluded as per art.14(e)- I agree that this will be matter of the applicable law. But it might, at least in my opinion, decide against the issuing bank with very similar result.

[T.O.Lee]

We are busily preparing for an overseas trip and therefore have missed this heated argument. Both sides appear to have their decision basis.

Under such circumstances, we have to go to the basics to determine whether “presentation by a courier not specified in the DC” is a discrepancy or not.

DEFINITION OF DISCREPANCY

According to the opinions of many ICC experts that we have met, including a heavy weight from the UCP 500 Working Party, a discrepancy is one that the STIPULATED DOCUMENTS do not comply with the terms and conditions of the DC AND the UCP 500 Articles that do not allow flexibility (such as without “unless otherwise stated” and the like).

SENDING DOCUMENTS VIA A COURIER DIFFERENT FROM DC SPECIFICATION IS NOT A DISCREPANCY

So according to this definition, it is clearly not a discrepancy because:

(1) The courier delivery is not a STIPULATED DOCUMENT. It is only a delivery service. So it cannot be counted as a discrepancy.

(2) Similarly, ICC opinion also says that a DC asks for “all documents to be sent by one mail” whilst the nominated bank sends them by two mails. This is not deemed as a discrepancy according to an ICC opinion. Please search the DC Pro for it.

(3) It is not a duty of the beneficiary.

(4) His attorney may ask the issuing bank: ”Hey! What have my client done wrong to make you dishonour your payment? It is your own agent that has messed up the things and as a principle you should be liable for such negligence, if you will. We are talking about the law and not Article 18 of UCP 500”.

(5) We should not get confused and treat all data content (any words) in a DC are terms and conditions. This is one wrong concept held by many DC practitioners which we found out in conducting case studies in our workshops. In fact, a DC comprises of many parts. The Beneficiary only has to take care of the stipulated documents part. The recent ICC opinion is that the draft is not something wanted by the Applicant but rather by the Issuing Bank.

Others are inter-bank instructions, such as reimbursement instructions, sending the documents by one or two mails, by courier, specific or general courier, or by registered mail and the like. These do not concern the Beneficiary and may be sent separately as bank-to-bank instructions. The Beneficiary needs not know about these things. So any such offences have nothing to do with the Beneficiary. They are ABSOLUTELY not "terms and conditions" (where compliance is a precedent to payment) of the DC, as far as the Beneficiary is concerned.

(6) Article 14 (e) only says that preclusion is applicable if the issuing bank “fails to act in accordance with the provisions of Article 14 and fails to hold the documents…” But “refusing to receive the documents by a different courier” is not mentioned in Article 14 or any Article of the UCP 500. Therefore we cannot find a ready answer in the UCP 500. It follows that this is a job for the court, wherever it is located, that has jurisdiction on this dispute.

IN CASE OF ARGUMENT, PLEASE GO BACK TO THE BASICS

We would suggest members to go to the basics if they cannot compromise or agree on a mutually acceptable opinion. However, a fireman friend told us that in case of fire, go towards the fireside! (the “basics” where the oxygen is abundant)

We shall be absent from the Discussion Forum for the period of 18-28 January 2002 to do an overseas trip.

http://www.tolee.com

[edited 1/18/02 4:26:13 PM]

[NigelHolt]

I'm (on the whole) with Leo & T.O. on this one.
[edited 1/17/02 2:46:50 PM]