When Procedure Meets Reality Expiry Dates, Waivers of Discrepancies, and the Issuing Bank’s Conduct

In documentary credit practice, many disputes do not arise from complex legal theory, but from misunderstandings of timing, procedure, and the roles of banks versus applicants.

 Questions about waiver of discrepancies, the meaning of an LC’s expiry date, and whether an issuing bank can act in a way that favours the applicant are not new. Yet they continue to surface—especially when one looks beyond the black-letter rules and into real-world practice.

 Today’s Q&A addresses all three issues, separating what the UCP 600 actually provides from what sometimes happens in practice.

QUESTION

Hi Mr. Old Man,

Thank you for your prompt response. I spent a few hours browsing the Internet before writing this email, but I still have some questions that I couldn’t find clear answers to.

1/ I read an article stating:

“The applicant has not provided its waiver of discrepancies within the time allowed by UCP 600 (which can be no later than the close of the 5th banking day following the day of presentation unless the credit says otherwise), so the issuing bank refuses the documents.”

Is this statement correct?

2/ What exactly does the expiry date of an LC mean?

Does it mean the seller must present the documents to the advising bank before that date, or that the issuing bank must receive the documents before that date?

3/ I may be a bit paranoid, but have you ever encountered cases where an issuing bank has acted in a way that favours the buyer and harms the seller?

Thank you very much.

Tengku

_______

ANSWER

Dear Tengku,

Thank you for your thoughtful and practical questions. Let me address them one by one.

 Waiver of Discrepancies and the Five Banking Days

Under UCP 600 Article 16(b), when an issuing bank determines that a presentation contains discrepancies, it may, in its sole judgment, approach the applicant for a waiver of those discrepancies.

However, this approach does not extend the issuing bank’s examination period.

The issuing bank must still, no later than the close of the fifth banking day following the day of presentation, either:

• honour or negotiate (if applicable), or
• give a notice of refusal in accordance with Article 16.

If the issuing bank does not receive a waiver from the applicant within that time, or does not accept the waiver received, it must issue a timely notice of refusal.

In practice, when the applicant waives the discrepancies and the issuing bank accepts that waiver, payment usually follows. That said, it is important to remember that a waiver is a commercial instruction from the applicant, not a binding obligation on the issuing bank. The issuing bank retains the right to refuse even if the applicant accepts the discrepancies.

2. What the Expiry Date of an LC Really Means

The expiry date of a documentary credit is the latest date on which a complying presentation may be made under that credit.

The beneficiary must present the documents to the issuing bank or to the nominated bank at the place of presentation stated in the credit, on or before that expiry date.

Where transport documents are involved, UCP 600 Article 14(c) further provides that a presentation must be made:

• not later than 21 days after the date of shipment, and
• in any event not later than the expiry date of the credit,

unless the credit stipulates otherwise.

If the credit specifies a shorter presentation period, that shorter period prevails.

Example 1

The LC states:

• Expiry date: 31 December
• Latest shipment date: 10 December
• Presentation period: Within 10 days after shipment, but within the validity of the LC

The bill of lading shows shipment on 5 December.

→ The documents must be presented no later than 16 December.

Presentation after that date is late, even though the expiry date is 31 December.

Example 2

The LC states:

• Expiry date: 21 December
• Latest shipment date: 10 December
• Presentation period: 15 days after shipment, but within the validity of the LC

The bill of lading shows shipment on 10 December.

→ Although the presentation period would extend to 25 December, the documents must be presented no later than 21 December, the expiry date of the LC.

In short:

The beneficiary must present the documents no later than the last permissible presentation date under the LC and, in all cases, no later than the expiry date—whichever comes first.

3. Has an Issuing Bank Ever Favoured the Applicant?

In principle, and under UCP 600 Article 5, banks deal with documents and not with goods, services, or performance. Issuing banks are expected to act independently, professionally, and in accordance with the rules.

That said, reality has shown that problematic situations can occur.

Example 1

Documents arrive at the issuing bank, but the goods have not yet arrived at the port of discharge. The applicant, wishing to delay payment, asks the issuing bank to raise one or more invalid discrepancies to justify refusal and buy time.

Reputable banks do not engage in such practices.

Example 2

Although disputes over the quality of goods fall outside the scope of documentary credits, there have been cases where payment is intentionally delayed to enable the applicant to seek a court order suspending payment pending litigation.

Such actions contradict the independence principle of letters of credit, and again, reputable banks do not act this way.

Conclusion

In summary, three points are worth keeping in mind.

First, an applicant’s waiver of discrepancies does not extend the issuing bank’s examination period. The five banking days under UCP 600 run independently of any waiver discussions.

Second, the expiry date of a letter of credit is the final deadline for presentation, but it must always be read together with any presentation period stated in the credit. The earlier of the two determines the last permissible date for presentation.

Finally, while the rules require issuing banks to act independently and deal only with documents, practice shows that pressure from applicants can arise. Such conduct is inconsistent with the principles of UCP 600 and should have no place in proper banking practice.

Understanding these distinctions helps avoid confusion, misplaced expectations, and unnecessary disputes in documentary credit operations.

Best regards,

Mr. Old Man