Can the Issuing Bank Refuse Based on the Applicant’s ‘Late Sailing’ Investigation?

INTRO

Every now and then, Mr. Old Man receives a question that perfectly illustrates how easily a clean, compliant LC presentation can get tangled when buyers panic—usually when prices fall.

And very often, someone in the chain suddenly “investigates” and claims the vessel sailed late… even though the Bill of Lading says otherwise.

 So here’s a real case from India involving an issuing bank in China, Article 34, fraud rules, and the eternal question:

“Where do we complain and how do we get our money?”

 Let’s break it down.

QUESTION

Dear Mr. Old Man,

I have encountered a case on which I’d appreciate needs your expert opinion.

My bank in India submitted LC documents to the issuing bank in China on 12 August (via DHL).

On 21 August, the issuing bank replied that:

1. Although the BL date complies with the LC,
2. Our client has “investigated” and found that the ship actually sailed late,
3. They “tried” to notify this on the 19th but could not.

Under UCP 600:

• They responded after 5 banking days,
• The BL date matches the LC terms,
• But they are acting on the Chinese applicant’s instructions.

The real reason: the commodity price fell sharply during the 15-day voyage.

What should we do? Where can we complain against the issuing bank and recover our money?

Regards,

Indi

________

ANSWER

Dear Indi,

This is a classic confusion between documentary compliance and actual shipment performance.

1. UCP 600 Article 34 — Banks are not responsible for actual shipping events

Article 34 clearly states that banks have no liability for:

• the accuracy, genuineness or legal effect of documents,
• the actual shipment or performance of the carrier,
• whether the vessel sailed on time or not.

If the documents comply on their face, then you—as a bona fide negotiating bank—are entitled to reimbursement from the issuing bank.

2. UCP 600 Article 14(a) — Banks examine documents only

The issuing bank must determine compliance on the basis of documents alone.

If the BL date is correct under the LC, the issuing bank is obligated to honour.

A claim such as “our client investigated and found late sailing” is not a discrepancy under UCP 600.

3. Fraud? Only if supported by a Chinese court order

Fraud is governed by local law, and in China it follows the Supreme People’s Court (SPC) 2006 LC Rules.

Under these rules, a court may issue a stop-payment injunction only if the applicant shows evidence of fraud—such as forged documents, malicious non-delivery, or collusion.

If no injunction exists, the issuing bank cannot refuse payment based on an “investigation”.

4. Protection for bona fide banks

Even if fraud does exist, the SPC Rules protect negotiating banks:

The court must not enjoin payment if a bona fide negotiating bank has already paid against apparently compliant documents.

Meaning:

If your bank negotiated in good faith → you are entitled to reimbursement.

5. What you should do now

• Reject the issuing bank’s refusal under UCP 600 Article 16

Your bank can reject the refusal on two grounds:

• The notice of refusal was issued after the 5-banking-day deadline, making it invalid under Article 16(d).
• The alleged discrepancy (“late sailing investigation”) is not a valid documentary discrepancy under UCP 600, since the BL date complies with the LC and banks examine documents only.

Accordingly, the issuing bank remains obligated to honour the presentation.

• Ask whether a court injunction exists

If there is no injunction → payment must be made.

If there is an injunction → request a copy.

• Reassert your rights as a bona fide negotiating bank

Emphasize:

• documents complied,
• rejection was outside the 5-day rule,
• Article 34 shields you,
• SPC Rules protect negotiating banks.

• Escalation (in this order)

1. Issuing bank’s head office
2. China Banking and Insurance Regulatory Commission (CBIRC)
3. Chinese legal counsel (to verify injunction status)

Bottom line

The situation you describe looks like a commercial dispute caused by falling prices, not fraud.

The issuing bank must honour a complying presentation unless a valid court injunction exists—and even then, bona fide negotiating banks are protected.

Best regards,

Mr. Old Man