ICC Digital Library Forum

Here is another interesting question.

A Confirming Bank and an Issuing Bank have been transacting letter of credit for the same customers for the same merchandise for many years.

The amounts involved have been substantial and settlement of all presentations have come through satisfactorily up until now – sometimes based on complying presentations and sometimes after – waiver has been provide by applicant which the |Issuing Bank accepted.

As the amounts involved were big the Confirming bank would typically telephone the Issuing Bank to check that documents had been received and in the process asked when payment would be made.

They spoke to different operations staff in the Issuing Bank on different occasions and the answer give was something like ‘as usual we expect to pay within the next two or three days’.

Everything went fine until recently.

In a recent presentation it followed a similar pattern and again when the confirming bank phoned the Issuing Bank the issuing bank staff member said as usual something like ‘ we expect this presentation will be paid within next few days’

However, what transpired was that the Issuing Bank issued a proper notice of refusal by MT 734 before the close of the fifth banking day following the presentation stating valid discrepancies.

Would you consider the verbal advise on the phone which I guess is by ‘telecommunications’ mentioned in UCP means that the Issuing Bank can not refuse after the verbal acceptance, especially as that is what happened in earlier presentations.

I usually have my own clear opinion on UCP issues (even though I have learned through the knowledge in this forum that my opinions we not always correct) but this time I am between two minds.

Most likely this will sort itself out as in reality it appears that the reason for refusal by the applicant is in reality because the ship is late in arriving they probably don’t want to pay until the goods arrive.

Just curious as to what the correct outcome would be if the Issuing Bank maintained its refusal position.

Thanking you in advance for your views.

Svetlana

Hi Svetlana,

I am glad you have raised this issue as this is something I keep drumming home to my staff.

According to UCP600 Art 16c if a bank decides to refuse to honour a presentation it must do so in a single notice. It does not elaborate on the form that notice should take, so a telephone conversation must be deemed to be notification.

I always advise my team not to commit themselves if a beneficiary or presenting bank calls to chase a decision on a set of documents, and the checking process has not been completed. Then, if we decide to refuse this should be done by sending a fax or swift refusal, not refuse by telephone. As we all know, the presenter will argue every single point and it's all too easy to forget to 'refuse' or to miss out some of the discrepancies, by being sidetracked by the arguements, or to state what it is doing with the documents. Banks only get one chance to refuse, so they must make sure they comply fully with Art 16c, so it is essential the refusal is correct.

Having said that, I think in the example you have given the Issuing Bank have not commited themselves by stating 'we expect this presentation will be paid within next few days’. This neither indicates that documents are clean nor discrepant and is a vague statement that reflects the reality of previous presentations.

The legality of a telephone conversation as notice of refusal was to some extent put to the test in the Total Energy Asia Ltd vs Standard Chartered Bank (HK) Ltd case in 2006. Although this case did not reflect your scenario, some credence was given to a telephone conversation between the presenting and confirming banks. Of course, the content of the conversation was hotly disputed and this is where the problem lies. If a refusing bank is relying on a telephone refusal it would be prudent to make sure that calls are recorded and kept some time. In the case mentioned it was 7 years before the case came to court!

Despite Art 16c, the case also provided the possibility of refusal by 2 seperate means of communication so long as one of the communications "unequivocally referred to and incorporated the other". Therefore it is possible for a bank to call a presenter and state that they are refusing documents and will advise the full list of dicrepancies by fax, or vice versa.

I'm not sure all this helps your cause but I would be interested to know whether anyone agrees or disagrees with me, or if they have anything further to add.

Regards
David

Thank you David for the valuable insight.

My working colleague who is much more experienced than myself has the opinion that a long as the issuing bank issues a proper notice of refusal before the close of the fifth banking day following presentation that any previous conversations about the documents or otherwise are irrelevant and the properly issued notice of refusal stands.

She maintains that this is the practice that has evolved and is reflected in the rules and there is noting in the rules about notices of acceptance of a presentation.

If a bank had honoured by accepting a draft then that is a different story as all would be clear in that case.

Svetlana