FROM A NOTICE OF REFUSAL… TO A NEW YEAR’S GIFT

(a small story from the LC trade)

Real-life cases sometimes reveal gaps in existing guidance. Situations like the one described in this story were among the factors that eventually led to the inclusion of paragraph (ix) in the Preliminary considerations of ISBP 821.

In the days leading up to Tet, the Vietnamese Lunar New Year, people working in letters of credit usually hope that everything runs smoothly so they can enjoy the holiday in peace.

But four years ago, I received a rather “urgent” Messenger message from LN, who was working at the Trade Finance Center of a bank in Vietnam.

She was handling a documentary presentation that had been refused by a foreign bank and needed ICC references to support her arguments.

The situation, in brief, was as follows:

An LC was issued by a bank in Kenya and confirmed by a bank ranked among the Top 5 in the United States.

Documents were to be presented to the confirming bank, with payment by acceptance of a usance draft at 180 days.

Field 47A contained a rather unusual clause:

A PHOTOCOPY OF ALL DOCUMENTS REQUIRED IS REQUESTED FOR ISSUING BANK’S FILE, OTHERWISE USD 15.00 (OR EQUIVALENT) WILL BE DEDUCTED FROM THE UTILIZATION AMOUNT.

The beneficiary presented a full set of documents in compliance with the LC, together with a set of photocopies. However, when the presenting bank forwarded the documents to the confirming bank, it inadvertently failed to include the photocopy set.

The confirming bank then issued an MT734 refusing the documents, citing the discrepancy:

PHOTOCOPIES OF ALL REQUIRED DOCUMENTS EXCEPT B/L NOT PRESENTED.

At this point, I was quite surprised. For such a large bank to refuse documents on this basis was, frankly speaking, rather puzzling.

In the spirit of Field 47A, if photocopies were not presented, the bank’s remedy was simply to deduct USD 15 — the cost of photocopying documents for the issuing bank’s file. The clause did not turn the absence of photocopies into a discrepancy justifying refusal.

I suggested that the presenting bank immediately send a SWIFT message rejecting the stated discrepancy, requesting the confirming bank to accept the draft and, if it wished, deduct the USD 15 in accordance with the LC. It could also politely point out that international expert opinions considered such a refusal to be without basis, and that, if necessary, the matter could be referred to the ICC.

In my capacity as editor of LC Monitor (Trade Services Update), I also shared the case with international colleagues. More than 20 experts joined the discussion, and all agreed that the refusal in this situation was incorrect. Some even commented bluntly that a clause like Field 47A was “ridiculous,” as it undermined the value of a letter of credit.

And then…

One week later — a New Year’s gift

The confirming bank withdrew its notice of refusal and agreed to honour the presentation.

On the first working day after Tet, LN sent a message to thank me. Half-jokingly, she said:
“This is my New Year’s gift from you.”

Giving is receiving.

I was happy to receive the good news in return — a good ending, and just in time for the new year.

After many years in the LC trade, I have learned that arguments are not always about winning. Sometimes they are simply about defending a correct principle, helping a transaction reach a fair conclusion, and allowing professionals at both ends of the chain to understand each other a little better.

Last but not least

This case occurred more than four years ago, at the time of ISBP 745, when there was not yet any guidance on situations where an issuing bank incorporates administrative-type conditions, such as requiring an additional set of copy documents to be presented for the issuing bank’s use.

Perhaps it was real-life cases like this that eventually led to the inclusion of paragraph (ix) in ISBP 821 – Preliminary considerations, which states:

“An issuing bank should not incorporate in a credit administrative conditions such as a requirement for an additional set of copy documents to be presented for the issuing bank’s use or a condition that all documents may not be stapled. If, nevertheless, such conditions are incorporated into a credit but complied with, this will not constitute a reason for refusal.”

On the occasion of the 2026 Lunar New Year – the Year of the Horse – I wish you good health, peace, and good fortune in both life and work.

—

Mr. Old Man