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CONFIRMING BANK'S LIABILTY TOWARD DISCREPANT DOCUMENTS

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NEW CASE STUDY FROM Mohammed al-kelani

Dear colleagues

in trying to present the most important cases that might face any of us during handling an L/C kindly give some minutes of your time to think about the following;

an L/C is issued available with a nominated bank by sight payment requesting the nominated bank to(ADVISE/CONFIRM) the L/C besides being the only nominated bank in the credit.
the nominated bank adviced the L/C to beneficiary adding it's confirmation.
the beneficiary presented his docs to the NOMINATED/CONFIRMING BANK one day before validity accompanied with a covering letter from him requesting the bank to send his discrepant docs to the issuing bank according to an agreement with the applicant to accept them.

due to unexpected financial problems between the issuing bank and applicant, the issuing bank rejected docs on the 5th. day and informed the nominated bank by swift.

the nominated bank informed the beneficiary that his docs were rejected by the issuing bank, butbeneficiary requested payment from the nominated bank in his capacity of a confirming bank.

the confirming bank refused to pay because the docs were discprepant, but beneficiary insisted on being paid because the confirming bank did not reject the docs within 5 days from date of presentation.

the confirming bank informed beneficiary that there was no need to reject due to a covering letter from the beneficiary him self declaring that docs were discrepant and requesting the confirming bank to send docs as they are to the issuing bank, accordingly no payment will be made to beneficiary.

do you think that the confirming bank must pay the beneficiary or not ?

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Mr. Old Man's comment on Mohammed Al-kelani's case study

To Pay or Not to Pay

Many thanks, Mohammed al-kelani for your interesting case study. I wish to share my view on the case as follows:

Regarding the confirming bank’s liability, I ‘d like to draw your attention to Article 8 (a) (i) which says: “Provided that the stipulated documents are presented to the confirming bank or to any other nominated bank and that they constitute a complying presentation, the confirming bank must honour if the credit is available by sight payment …”.

In view of the above article, the confirming bank is bound to honour on the condition that the documents presented are complying with the terms and conditions of the credit.

As described in the case study, the beneficiary presented to the confirming bank the documents together with his covering letter in which he stated all the discrepancies and instructed the confirming bank to forward the discrepant documents to the issuing bank for payment. As the documents were discrepant, the confirming bank’s liability for payment was released.

It is quite correct that when a nominated confirming bank decides to refuse to honour, it must give a single notice to that effect to the presenter (beneficiary) within a specified period, i.e., five-banking days following the day of presentation. However, in this concrete case, there was no need for the confirming bank to give such a notice of refusal since right from the beginning, the beneficiary admitted that the documents were discrepant and that he was unable to ask the confirming bank to fulfill its payment obligation, instead he instructed the confirming bank to forward the documents to the issuing bank for payment.

Suppose that the case is brought to court. It would be not easy for the beneficiary to answer when asked by the judge why he did not ask the confirming bank to pay at sight but instructed it to forwarded the documents to the issuing bank for payment. What answer would you give if you were asked the same question ?

The case study is very interesting and useful as such a same thing is now and then repeated here and there in our actual life.. A good lesson from the case study is that to avoid possible dispute a correct notice of refusal should be given when the nominated bank/confirming bank/issuing bank decides to refuse to honour or negotiate the documents which are found to contain discrepancies whether such discrepancies are found by the bank itself or informed by the presenter.

Best regards,
Nguyen Huu Duc
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