MUST THE STATEMENT OF DEFAULT BE PRESENTED WITHIN THE VALIDITY OF THE SBLC?

QUESTION

Dear Mr. Old Man,

At the beginning of the lunar new year, we wish you and your family good health, peace and prosperity.

We would like to ask you to advise me on the following case:

At the request of our customer (Applicant), our bank issued an MT 760 SBLC in favor of ABC Company (Beneficiary).

The SBLC contains the following clauses:

“This SBLC is available by your sight draft or T.T claim on us and your statement stating that H.L Construction Company has defaulted in their obligations signed with authorized signatures and stamps (if any) by both parties.

This SBLC takes into effect from the issuing date, and will be valid until 23 Jan 2025 in Vietnam (hereinafter called the expiry date) or the payment obligations have been fulfilled (guaranteed amount is credited into beneficiary’s account) whichever comes first”.

On 23 Jan 2025 we received a Swift claim for payment from the beneficiary’s bank (presenting bank) stating that the statement of default will follow by mail.

On 3 February 2025 we received the statement of default signed by ABC Company only.

We refused the documents citing the following discrepancies:

+ Late presentation

+ Statement of default not signed by H.L Construction Company.

However, the presenting bank rejected the discrepancies arguing that the claim was made within the validity of the SBLC and that the clause requiring the statement to be signed by both parties was a toxic clause, thus, void.

We want to know if the presenting bank’s rejection is valid. Which party, the Beneficiary or the presenting bank, will sue our bank if this dispute goes to court?

One more question. This Standby LC was issued against 100% of the deposit of our customers. When do you think we should release this amount and return it to the customer?

Thanks, and best regards,

PMD

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ANSWER

Hi,

Happy Lunar New Year!

It can be understood from the SBLC terms and conditions that the documents required to be presented for payment will include a T.T claim and the beneficiary’s statement of default signed by both the beneficiary and the applicant  and that they must be received by the issuing bank within the validity period of the SBLC, that is, on or before 23 Jan 2025 at the latest.

Since the statement of default was not signed by the applicant and was  presented after the expiry date of the SBLC, the issuing bank is no longer obliged to pay.

Therefore, I agree that the issuing bank’s refusal notice stating the two discrepancies of late presentation and the statement of default not signed by the applicant is valid to refuse the claim.

The presenting bank’s rejection of the issuing bank’s refusal was invalid. If the dispute leads to a lawsuit, the beneficiary, not the presenting bank, has standing to suit the issuing bank. However, I do not think the beneficiary will prevail because it has made a non-complying  presentation under the SBLC. The beneficiary should sue the applicant according to the sales contract signed between the beneficiary and the applicant.

The issuing bank can release the deposit as soon as it is sure or certain that its notice of refusal is valid or according to its internal regulations.

Best regards,

Mr. Old Man