FRAUD SUSPECTION

asamaha – Lebanon
Posted 01 Sep 10 |

Does an issuing bank have to accept a corrected quality certificate showing test results conform to LC terms, in replacement for a discrepant one with different test results, if presented in time after its refusal of the documents ?
.
I appreciate your prompt reply.
.
Regards
Antoine Samaha

DanielD – Switzerland
Posted 01 Sep 10 |

No, there are some "restrictions".
Bad faith is one of them

Daniel

JSMITH – United Kingdom
Posted 02 Sep 10 |

Under UCP600 an issuing bank must honour such a document. Questions of supposed fraud, and their impact on an issuing bank’s UCP obligations, are a matter for the applicable law. Under English law seeming or actual ‘bad faith’ would not, I believe, override an issuing bank’s UCP obligations.

DanielD – Switzerland
Posted 02 Sep 10 |

In Switzerland, it would. Art. 2 of our civil code is a fundamental one. People must act in good faith. "The law does not protect the abuse of rights". I will not pay such a suspicious document, UCP 600 or not. UCP 600 is not above the law. In such cases, if things go wrong, it is always the banks which take the loss.
Daniel

JSMITH – United Kingdom
Posted 02 Sep 10 |

My understanding of English law is that the issuing bank would have to prove (to a civil law, as opposed to criminal law, standard) fraud by the beneficiary. However, if the presenter were a nominated bank that had honoured or negotiated the issuing bank would have to prove that the nominated bank had acted fraudultently.

Assuming the certificate was issued by a party other than the beneficiary I do not see any scope for saying there is fraud unless it can be shown the certificate is a forgery. It should be a simple matter to contact the issuer to establish the position and -if need be- query the revision of the certificate.

Nguyen Huu Duc – Viet Nam
Posted 02 Sep 10 |

Hi Daniel,

The issuing bank must honour unless it has a proof of fraud which is normally provided by the applicant along with a court injunction ordering the issuing bank to stop the payment. The issuing bank can not base on the corrected certificate showing different test results to come to the conclusion that it is fraudulent, and hence refuse to honour.

Regards,
Duc N.H

DanielD – Switzerland
Posted 03 Sep 10 |

Duc H.N.,

I have never said that the document was fraudulent, I said it was suspicious. So allow me to rephrase what I wrote previously. I will not pay such a document without making some investigations such as, as suggested by Jeremy, contacting the issuer or the presenter and requesting some explanations.
Daniel

JimBarnes – United States
Posted 11 Sep 10 |

Because fraud/abuse is an extraordinary defense (which will likely require clear and convincing proof), an issuing bank should probably not raise such a defense or even investigate suspicion of fraud/abuse without obtaining consent (and maybe also an expanded indemnity) from the applicant. Any such defense raised or investigation undertaken by the bank can disrupt the underlying transaction or relationship and may lead to a claim against the bank by the beneficiary or applicant. Contacting the applicant in such a case should typically result in the applicant's taking charge and either suing to enjoin honor or acquiescing in LC honor.

Of course, if the bank suspects that the applicant may be a participant in a fraud/abuse targeting the bank, that is another matter.

Regards, Jim Barnes