TO HONOUR OR NOT TO HONOUR

QUERY FROM PVN
Subject: RE: query about signatures on documents

Dear Mr Duc,

Thank you very much for your soon reply.

As far as my concern, I also think that we can't consider this as a discrepancy. There are somethings sound contradictionary but must be accepted. Moreover, in fact 1 person can own different companies in different fields. But I still want to ask you as an expert because I'm not sure whether I'm correct.
But We are now encountering a much harder case in our bank and indeed need an advice from you. Terribly sorry if I take too much time of yours and if my English is difficult to understand. The case is as follows:

On 31 Jan 2008 we issued an irrevocable LC at sight confirmed by Bank W. this LC valued 100,800.00USD. the latest shipment date stipulated in the LC was 31 Mar. And on 28 Apr, we received a set of documents from Bank W. The documents contained the following discrepancies:

+All documents doesn't quote LC date (in the LC we stipulated that all documents required must show LC number and date)
+Invoice: doesn't quote the trade term's source (in commodity description, we state clearly "CFR Hai Phong, Vietnam, Incoterms 2000)
+Packing list: doesn't quote the Contract number as stipulated in the LC.
+Certificate of quantity: lacks of 1 copy

The Bill of lading shows that the goods were shipped on 31 Mar and ETA was 20 May,2008. These discrepancies and mistakes are very tiny and we truly doesn't want to refuse payment.

On 2 May, We sent a message to advise Bank W. as well as the applicant the above discrepancies. Due to the discrepancies, the applicant wanted to delay payment until the shipment arrival (about 20 May) and had no intend of payment refusal. Under the applicant's instruction, We sent a message to Bank W. and asking whether they accept to be paid until the shipment arrival. At first, Bank W. required us to pay at sight as the LC terms or return the documents back to them. After that Bank W. sent us an MT799, in which the beneficiary accepts to wait for payment within May.

But unfortunately, the shipment arrives 1 month later than the initial ETA, we were advised by the applicant that the beneficiary had already accepted to extend the payment date until the shipment arrival. On 2 June, we sent Bank W. an MT799, notifying them that the applicant only accepts to pay as soon as receiving notice of arrival, and asking them to confirm us whether the beneficiary accepts to wait for the payment. On 6 June, we received a message from Bank W.in which they asked us to notify them a firm payment date. But we can't make sure when the shipment will arrive so we just reconfirm them that the beneficiary accept to wait for payment until shipment arrival. Up to date, we have received no answer from Bank W.
Today we have contacted the carrier's agent in Vietnam and be notified that the vessel will arrive in the coming day (about 21 June). But Too late arrival of the shipment badly affected the business operation of the beneficiary, in addition to many disadvantageous changes in the steel market and USD exchange rate, so they insist to refuse payment.

This case is very urgent because it's still outstanding and needs to be settled immediately. So could you pls give us your advice as soon as possible. We are trying to persuade the applicant to pay for the shipment but on the other hand, we still want to ask you:

+ Could we refuse to pay and return the documents now?
+ In case of refusing payment and returning documents, are there any disputes or legal actions which could be taken against our bank?
+ In your opinion, which is the best solution for this case?

Truly hope to hear from you soon.

Thank you very much for your help!

——————————————————-
MR. OLD MAN’S COMMENT
Subject: RE: to honour or not to honour

Hi PVN,

No need to say sorry. Your English is excellent.

Your bank is being sandwiched between an anvil and a hammer. It is a very tough case really. If your bank does not treat the matter cautiously, it may fall into the same situation as Agribank’s Operation Center I in connection with the case of Agribank/Centrimex 3 vs BHF/Bayfern, which took place in 2002.

I have no chance to read all messages exchanged between your bank and Bank W. or the instruction your bank received from the applicant, therefore, it is not easy for me to give you a proper advice. Yet, based on the information given in your query, I am of the following opinion:

1) It is advisable that the applicant accept to pay as he agreed to waive the discrepancies and accept to pay upon the shipment arrival, and instructed your bank to confirm the same to the beneficiary through the confirming bank.

If having obtained such a clear conditional waiver in writing, your bank will have a good evidence/proof to force the applicant to fulfil his payment obligation under the contract for opening L/C signed between your bank and the applicant.

Please draw the applicant’s attention to the truth that banks deal with documents and not with goods, services, or performance to which the documents may relate, and an L/C is a separate transaction from the sale contract on which it may be based. Therefore, any disputes in connection with the goods shall be settled between the buyer (applicant) and the seller (beneficiary) and banks are in no way concerned with or bound by such a contract.

2) In the event, for some reason, your bank has to dishonour the documents, your bank may cope with a legal action taken by the presenter (either by the beneficiary or the confirming bank). However, from the information given, I see there still seems to be a light at the end of the tunel: Bank W. has neither confirmed to your bank the beneficiary’s agreement to extend the payment date to the shipment arrival nor given any further instruction regarding the disposal of the documents. The fact Bank W. has been silent to your request may serve as a reason for your bank to deny your payment obligation under the L/C. Please note that this is only a narrow emergency exit door that you bank must manage to get through.

3) I don’t know whether your bank gave a proper notice of refusal in accordance with UCP 600 Article 16 (c) when finding the documents presented discrepant. If the notice of refusal was not given in proper, the best solution for your bank is to force the applicant by all means to fulfil its payment obligation under the contract for opening L/C and in accordance with its instruction given to your good bank.

4) You may know the case of Agribank’s Operation Center and Centrimex 3 regarding the loss of 10,000 MT Urea fertilizer worth about 1,5 million dollars. I would like to warn your bank to handle the case carefully to avoid repeating their wrongdoing.

5) Please note that the opinion reflects my own view only and I do not assume any responsibility for any consequences arising from using any part of my opinion. To honour or not to honour depends on your bank's final decision.

Best regards,
Mr. Old Man (Nguyen Huu Duc) …