DOES ACCEPTING DISCREPANT DOCUMENTS MEAN THAT A BANK HAS TO ACCEPT SIMILAR DISCREPANCIES ON FUTURE DRAWINGS

QUESTION

Dear Mr. Old Man,

We need your professional opinion on the following issue:

LC issued by our bank stipulates goods are shipped in 2 shipments.

The beneficiary effected the 1st shipment and presented the documents to our bank via Bank N for reimbursement. We checked and found the bill of lading to contain the discrepancy “shipped on board notation not dated”. We rejected the documents and advised Bank N and the applicant of the same. However, the applicant accepted the discrepancy and eventually the documents were paid.

The documents presented for the 2nd shipment contain the same discrepancy. We rejected the documents advised Bank N and the applicant of the same, but this time the applicant did not waive the discrepancy as the price of goods on the market went down.

Bank N rejected our refusal and requested us to pay the document value plus late payment penalty interest.

I want to know:

1/ Was our bank correct in refusing the documents?

2) If yes, which article of UCP 600 or ICC Opinion to which we can refer to support our refusal?

3) What if the price of goods did not fall down?

Thank you in advance for your advice.

Best regards,

H.B
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ANSWER

Hi,

I would like to answer your questions one by one as follows:

1) Yes, your bank was correct in refusing the documents. The fact that a bank has accepted documents with discrepancies does not bind it to accept similar discrepancies on any future drawing.

2) Please refer to ICC Opinion R332, which is quoted as below:

QUOTE

QUERY
Does accepting discrepant documents mean that a bank has to accept similar discrepancies on future drawings?

Documents that we had previously presented to an overseas bank were rejected due to the fact that an insurance certificate was presented in lieu of an insurance policy. This discrepancy was accepted by the applicant for the first two shipments.
We have now presented a third set of documents which contained the same discrepancy. The overseas bank has notified us that the applicant refuses to accept the documents on the basis of a certificate instead of a policy of insurance being presented.
We seek your expert advice as to whether this course of action is acceptable.

ANALYSIS/CONCLUSION
Analysis and conclusion
The fact that a bank may have previously accepted discrepant documents, with or without an applicant waiver, does not bind that bank to accepting a similar discrepancy(ies) on any future drawing(s) unless local law states otherwise. R332 – UCP 500 – Sub-Article 14(d).

UNQUOTE

3) According to your description, it is obvious that the applicant refused to take up the documents because the price of goods went down. If the price had not gone down or if it had gone up, the applicant would have waived the discrepancy to take up the documents.

Please note that the fact that the applicant waives the discrepancy does not bind the issuing bank to accept and pay the discrepant documents unless it agrees to accept the applicant’s waiver.

Kind regards,

Mr. Old Man