ICC Digital Library Forum

I would like to know whether it is a good practice for issuing banks to advise details of any discrepancies they discovered despite the fact that their applicant may have accepted them.

This would help the negotiating bank in determining the alleged discrepancy/ies as well as to avoid a situation where the applicant one rainy day choose to reject docs.

Thank you for yr comments.
[edited 10/24/01 3:11:32 PM]

Dear Jenny from Malaysia,

Selamat Datang!

This is not an easy query to answer.

From our involvement in DC dispute litigations, we would like to make the following points for you to consider:

(1) What makes an issuing bank so sure that the waiver message from the applicant received today is DEFINITELY irrevocable. The applicant may tell you a different story tomorrow if the price of the commodity product goes down drastically.

(2) It is the issuing bank's duty under Article 13 and 14 of UCP 500 to give refusal notice for discrepancies within reasonable time or to face the sanction under Article 14 (e). There seems to be no choice here.

(3) But from a risk management point of view rather than based on UCP 500 perspectives, an issuing bank that has given a refusal notice without approaching the applicant may receive a phone call from the applicant the next day

"Oh my God! Your bank has killed my business. The price of the commodity product that I have bought with this DC had gone up 200% yesterday and now I receive a phone call from the beneficiary that he would now sell it to a third party after receipt of your refusal notice yesterday. Please tell me whether your bank is trying to help me in my commodity trade or to screw up my business?"

(4) That is why we consider document examination is an art that may take years to mature. Risk management knowlege and experience is also a necessity.

Hati Hati!

http://www.tolee.com

[edited 10/24/01 8:39:09 PM]

I have a couple of observations:

1. There would not appear to be any UCP 500 requirement for a bank to do this.

2. If the issuing bank concerned has adopted the ‘Alternative Approach’ to discrepant documents, modifying sub-Article 14dii in the credit so as to allow it to release documents to the applicant -despite having sent a ‘refusal notice’- without the presenter’s further agreement (see previous discussions), it will usually send a rejection notice as soon as it has checked the documents. This will therefore put the presenter on notice of the discrepancies the issuing bank believed the documents contained, whether or not the documents are ultimately taken up.

WE DO NOT ENCOURAGE THE 'JEREMY CLAUSE'

To respond to Jeremy's comments, we do not encourage bankers to put this special terms (shall we call it the "Jeremy Clause" since this is his baby in the DC Pro) in their DCs that says

"The issuing bank, after sending its refusal notice, may release documents to the applicant against a waiver from the applicant before timely instructions for disposal of documents are received from the beneficiary".

BANKERS SHOULD SUPPORT AND NOT TO WORK AGAINST THE ICC BANKING COMMISSION

Why?

This is equivalent to changing the most important two Articles of the UCP 500. ICC Banking Commission is now trying to approve a document to guide parties on how to examine documents, how to approach the applicant for a waiver and how to send out the refusal notice. This document 470/952rev. is now under drafting and approval stage. It is to be discussed in the forth coming ICC Banking Commission meeting in Frnakfurt on 8th November 2001.

If bankers try to insert the "Jeremy clause" in their DCs, it would totally waste all the hard efforts of the ICC Banking Commission, as well as those who have given comments, to draft and approve such an important guideline document.

Article 13 and 14 are the backbone of UCP 500 and should not be tempered with by parties.

The path to evil is often paved with goodwill.

Freedom to contract should not be abused.

http://www.tolee.com

[edited 10/25/01 5:49:03 PM]

To answer the original query I believe it is a good practice to inform the beneficiary (presenter) of the discrepancies noted and it is advisable to include the following two statments in the message:
1) that the issuing bank is accepting the nonconforming documents on the instructions of its customer, and (2) that bank is not waiving any future incomplete performance. This is important so that the issuing bank may not find itself precluded from asserting similar discrepancies in subsequent presentations.

Nevertheless, one should know that in accordance with ISP98 article 5.03(a) failure to advise the presenter of discrepancies in a document presented doesn't preclude assertion of the same deficiencies in any different presentation under the same or a separate standby.

Therefore, if documents are presented under an LC subject to UCP 500 it is advisable to inform the presenter as stated above but if the presentation is under an LC subject to ISP98 it is not necessary to do so.

Re T.O.’s comment above, I would merely observe that at least one branch of Citibank, the Technical Adviser’s employers, has adopted the ‘Alternative Approach’. Given the number of banks that already have, around the world, I imagine it will not be too long before it is the norm.

Re AbdulkaderB’s comment above, I find this interesting. Certainly, in the UK, I believe we would vigorously reject the contention that failure to identify a discrepancy on one presentation means that one is legally estopped -under English law at least- from raising the same discrepancy on a subsequent presentation. Is anyone aware of any case law on the subject in major jurisdictions?

[edited 10/26/01 9:43:22 AM]
[edited 10/26/01 9:43:47 AM]
[edited 10/26/01 1:08:38 PM]
[edited 10/26/01 1:09:25 PM]

Dear Jeremy,

To make your posting look neat and tidy, may we suggest you to delete the record of editing at the end of your posting. We often do so since we also edit many times.

When we start to respond to a query or another member's comments, we think we only need a short message and therefore there is no need to go to the MS Word. But when we continue, it is not so. So what to do? We have to edit in the DC Pro instead of in the MS Word. This is always our problem.

Responding to your comments on ours regarding the "Jeremy Clause", we always say that when one bank does it, it is a bad practice or a sharp practice. But when most of the banks do it, it would become an international banking practice. Do you agree with this comment?

http://www.tolee.com

[edited 10/26/01 6:14:42 PM]

T.O.,

1st para: Thanks for the suggestion.

3rd para, answer to your question: No.

Jeremy.