LC CANCELLATION; DISCREPANCY FEE

QUESTION

Dear Mr. Old Man,

I have two questions for you:

1) The issuing bank sends an MT 707 advising that the LC is cancelled. The advising bank advises the beneficiary of the same, however, the beneficiary keeps silent as to the amendment and later the beneficiary makes a presentation for negotiation. Can we negotiate the documents?

I see that sub-article 10 (c) UCP 600 applies to the case where the beneficiary fails to give notification of acceptance or reject of an amendment, and does not apply to the case regarding cancellation.

2) LC stipulates that documents are to be sent to the issuing bank in Japan and drafts are to be sent to a reimbursing bank in New York.

The negotiating bank sent the documents to the issuing bank and the drafts to the reimbursing bank on 26 June, 2014. The negotiating bank received reimbursement from the reimbursing bank on 2 July, 2004 and paid the beneficiary and closed the file same day. On 4 July, 2014 the negotiating bank received notice of discrepancies from the issuing bank which requested the negotiating bank to pay USD50, being discrepancy fee.

Can the negotiating bank refuse to pay the discrepancy fee?

Thank you and look forward to your answer.

Best regards,
PT
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ANSWER

Hi,

1) According to sub-article 10 (a), LC cannot be cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary. That the beneficiary keeps silent as to the issuing bank’s request for LC cancellation and later makes presentation signifies that the beneficiary does not agree to cancel the LC.

The issuing bank must honour if the documents are complying. Therefore, you may negotiate the documents if they comply with the LC terms and conditions.

2) The negotiating bank should claim reimbursement if the documents presented comply with the LC terms and conditions. If the presentation contains discrepancies it should ask for the issuing bank’s approval and authorization to claim reimbursement from the reimbursing bank.

In principle, the negotiating bank should pay the discrepancy fee if the discrepancies stated are valid.

Kind regards,
Mr. Old Man