CAN THE ISSUING BANK REFUSE TO HONOUR THE CONFIRMING BANK IF IT FINDS THAT THE DOCUMENTS PRESENTED CONTAIN DISCREPANCIES?

QUESTION

Dear Mr. Old Man,

Would appreciate your feedback on the following:

Issuing bank issues an LC which is confirmed by the nominated bank. In field 78 issuing bank has stated that payment in favour of the confirming bank will be affected 4 bank working days from the date of the confirming bank’s swift to the issuing bank stating that fully complying documents have been remitted to the issuing bank.

Confirming bank sends said swift as per LC terms and due date for payment is the 12th July. Documents are received at the issuing bank’s counters on the 10th and the document checking process is completed by the 11^th at which point the issuing bank sends an advice of refusal in accordance with Art16 of the UCP citing the discrepancies found.

Confirming bank replied to the advice of refusal stating that upon receipt of the required swift in accordance with LC terms, the issuing bank is committed to pay as they gave the confirming bank a mandate to determine a complying presentation and that with such LC terms no discrepancy can delay payment.

Was the issuing bank within their right to do so? Art 16a of the UCP seems to indicate so. Or should they have still paid value 14th and then contested the compliance of documents issue with the confirming bank a posteriori?

Thank you,

Neil German

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ANSWER

Hi,

According to UCP 600 sub-article 16(a), when the issuing bank determines that a presentation does not comply, it may refuse to honour.

In your particular case, the issuing bank discovered that the presented documents contained discrepancies before the reimbursement was due to the confirming bank, hence , it had the right to refuse to honour.

Please note that even if the issuing bank has paid or reimbursed the confirming bank based on the confirming bank’s Swift advice that the presentation is compliant, the confirming bank must reimburse the issuing bank for the amount paid if the issuing bank subsequently determines that the presentation contains valid discrepancies and decides to refuse the documents.

Best regards,

Mr. Old Man