ICC Digital Library Forum

Has bank the right to refrain from checking documents and pay notwithstanding discrepancies if goods have been cleared by shipping guarantee

No. If it has issued the missing bill of lading indemnity concerned the issuing bank must take up and settle documents irrespective of their compliance. This is because it has facilitated the applicant getting the goods (something which -presumably- would not otherwise have happened unless the documents had been taken up).

The above is a personal view and given without responsibility/liability.



[edited 11/2/2004 8:07:43 PM]

Anthony,

a Bank which pays without checking documents is in breach of UCP 500 Article 14 b. Check this article focussing on the words "must" and "alone".
The same Bank would also be in breach of Article 13 a.

Laurence

Articles 13 & 14 become irrelevant -at least between the issuing bank & presenter- when the issuing bank facilitates release of the goods to the applicant.

As Judith says below, any prudent banker when facilitating the release of goods, prior to receipt of documents, obtains the applicant's agreement that the documents may be taken up irrespective of any discrepancies. (The position, and prudent action, would also be applicable, in principle, to doc'y collections.)

[edited 11/3/2004 10:10:43 AM]

In my experience, any bank that issues a guarantee to obtain release of goods without presentation of the B/L, or which endorses a B/L that arrived in the Ships Bag prior to presentation of documents under the credit, will require a signed authorisation from the applicant to accept documents as presented, despite any irregularity which the documents may have. They are therefore respecting the mandate that the applicant has given them.

However suppose that when the documents do arrive, the bank gives a cursory check and finds something that would make the import of said goods illegal (such as goods with an origin that is forbidden in the importing country). A rather sticky position I would say

Judith

From a purely practical standpoint, even if an indemnity is issued, there are reasons to check the documents:
1. Most important: is the B/L presented the actual one referred to in the indemnity? If partial shipments are allowed, it is certainly not a given that the first set of documents to arrive after the indemnity is issued pertains to the released shipment.
2. As Judith points out, the bank's local laws may require a check to make sure that no goods and/or parties and/or countries metioned are contrary to these laws (though obviously this is NOT a compliance check under UCP).
3. There may be information in the documents that affects future drawings, such as: documents that comply with any unaccepted amendments, compliance with a shipping schedule in an installment LC (this may affect the availability of the credit for future shipments per UCP Article 41), purchase order information may need to be updated for those credits with P.O. details in the merchandsie description, to determine if any negotiable documents need to be endorsed by the bank, etc.

There are probably a few I haven't thought of, but the point is the bank cannot just honor and pass on the documents blindly.

What does ”check” the documents mean?

I understood (right or wrong) the original question as to whether the documents were to be examined according to the UCP (article 13a), in order to determine if they are in compliance with the terms and conditions. My personal view is that this becomes re-dundant, once you have released the goods to the applicant.

The “check” that Lisa mention is for (understandable) practical reasons, and I agree that banks have to do that in their management of the specific credit. But not for determining L/C compliance.

Best regards
Kim

We need to get back to first principles here. The issue of an indemnity is a contract separate from the LC. Article 3 tells us that banks are in no way concerned with or bound by such contracts.
If banks are to ignore documents presented, they ignore their duty of care. They can then find themselves in a schizophrenic paradox - accepting documents without checking them could lead them to accepting as valid, Bs/L which are easily detected as fraudulent, but which they then pass on to the applicant. When the applicant tries to use these Bs/L to cancel the indemnity, the same bank, upon checking these docs, refuse to release the indemnity as the docs are fraudulent.

Laurence

Laurence, I am in fundamental disagreement with you. When the applicant asked the issuing bank to give an indemnity to allow the goods to be delivered without a b/l the issuing bank, if it was sensible, would have required the applicant to agree it (the applicant) will take up the documents if they are discrepant in any way, thus overriding the contract (between the issuing bank and applicant) entered into when the applicant originally applied for the credit. In such a situation, there is not any question of the issuing bank examining the documents, when received, for compliance. Obviously, if the b/ls are ‘fraudulent’ (a matter not covered by the credit or the UCP) the applicant will have already found this out when they went to collect the goods. In those circumstances, they will have to look to what ever remedies ‘local’ law allows in such circumstances.

Jeremy,

would you discharge an indemnity upon presentation of 3/3 original B/L, without checking to see if there were any anomalies within the documentation (regardless of UCP rules) ? Such presentation may come from the remitting bank (URC), Advising bank (UCP) or direct from the importer.
In my humble opinion, a prudent banker would at least check the documentation to verify that it matches the details of the outstanding indemnity.
A prudent importer would not give carte blanche to the bank to make payment without the checking procedure he has already contracted with the bank to do. If the importer/applicant agrees to forego the checking procedure, as you correctly said, he has no recourse to the bank if payment is made against a set of documents which have no bearing on the LC in question, no recourse for fraudulent documentation or possibly even incompetence within the bank. If the importer agrees to this, he could end up paying for the goods against an indemnity which he has no hope of ever releasing. If the goods also turned out to be fraudulent, he has no valid B/L with which to seek insurance or shipping line compensation.

You have said that the importer would discover if the B/L is fraudulent when he goes to collect the goods. This is not so.
Since he collects the goods against an indemnity, he will not be in possession of the B/L at that time. If he were, he would have no need of an indemnity. Therefore having collected the goods against the indemnity, he is totally reliant on the Issuing Bank not to pay against incorrect or fraudulent docs.
For example LC covers 100 kg of gold and indemnity covers that value. Importer gets goods against indemnity while awaiting original B/L. B/L is presented to Issuing Bank and is passed to importer unchecked. B/L reads 100 kg gold paint. Importer opens crate to discover gold paint. He realises only then the vulnerability of agreeing to waive checking of docs. He has a valid set of B/L. If he takes it to the carrier, the carrier will say he got exactly what was on the B/L. If he tries to claim insurance, he will get no further. The bank knows that he has (foolishly)agreed to waive checking, so all avenues are closed to him. He cannot even get redress from the law.
A most basic check on the part of the bank would reject and there would be no payment.

Laurence
[edited 11/8/2004 10:11:11 PM]