AUTHORIZATION/APPROVAL FOR NEGOTIATION/ PAYMENT OF DISCREPANT DOCUMENTS

QUESTION

Dear Sir,

Sometimes the beneficiary presents the discrepant documents and requests my bank to negotiate the documents. In this case we would forward the documents to the issuing bank stating the discrepancies and ask for the issuing bank’s authorization or approval for us to negotiate the documents. Sometimes the issuing bank gives us its authorization to negotiate such documents.

My questions are:

1) Can the issuing bank give such authorization?
2) Is the issuing bank bound to make payment after it has give such an authorization? Can it deduct the discrepancy fee from the proceeds when making payment to the nominated bank?
3) Must the nominated bank seek such an authorization from the DC issuing bank?

Awaiting your reply.

S.M
——-

ANSWER

Hi,

1) The issuing bank can only authorize the nominated bank to negotiate or honour the documents with certain discrepancies after it obtains the applicant’s waiver of the discrepancies.

2) If the issuing bank has authorized or approved for the nominated bank to negotiate/honour the discrepant documents, it must reimburse the nominated bank except where the presented documents contain other discrepancies that have not been approved by the issuing bank/the applicant. The issuing bank can deduct discrepancy fees from the proceeds in accordance with the L/C terms and conditions.

3) If the nominated bank wishes to negotiate or honour the documents with discrepancies, to avoid the risk of non-reimbursement from the issuing bank it should seek the authorization/approval from the issuing bank except where it agrees to negotiate on a with recourse basis.

Best regards,
Mr. Old Man