WHETHER THERE ARE CASES WHERE THE ISSUING BANK HAS ACTED IN A MANNER THAT FAVOURS THE APPLICANT AND HARMS THE BENEFICIARY

QUESTION

Hi Mr. Old Man,

Thank you for the prompt response. I’ve spent few hours browsing the Internet before writing this email but still have questions that I can’t find the answers for.

1. If you click this link, the article says: “The applicant has not provided its waiver of discrepancies within the time allowed by the 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 it true?
2. What does the expiry date of an LC mean? I’ve seen some different opinions about this online, and I’m not sure which one is right. Does it mean the seller has to present the documents to the advising bank before the date? Or does it mean the issuing bank should have possession of the documents before the date?
3. I may be a bit paranoid, but have you ever encountered a case where the issuing bank has acted in a way that favors the buyer and harms the seller?

Thank you!

Tengku

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ANSWER

Hi,

1) According to UCP 600 article 16 (b), when the issuing bank determines that the documents contain discrepancies, it may in its sole judgement approach the applicant for a waiver of the discrepancies. However, this does not extend the 5 banking days from the date of presentation of documents. That is to say, the issuing bank must give a notice of refusal to the presenting bank within 5 banking days from the date of presentation of documents if the issuing bank does not receive a waiver of the discrepancies from the applicant or does not accept the waiver from the applicant (buyer).

In most cases when the applicant waives the discrepancies, the issuing bank will pay the documents. However, the issuing bank reserves the right to refuse the discrepant documents even when the applicant accepts the discrepancies.

2/ The expiry date of an LC is the latest date for presentation of documents required under the LC. The beneficiary (seller) must present the documents to the issuing bank or the nominated bank (if so required) on or before that latest date.

According to UCP 600 sub-article 14(c), a presentation including one or more transport documents must be made not later than 21 days after shipment date but in any event not later than the expiry date of the LC.

There are cases where this period is limited by the presentation period specified by the LC:

Example 1:

– LC specifies:

+ Expiry date: December 31

+ Latest shipment date: December 10

+ Presentation period: Within10 days after shipment date but within the validity of the LC.

+ BL presented shows the date of shipment as December 5

Consequently, the documents must be presented no later than December 16, after this date it is considered a late presentation even though the expiry date of the LC is 31 December.

Example 2:

– LC specifies:

+ Expiry date: December 21

+ Latest shipment date: December 10

+ Presentation period is 15 days after shipment date but within the validity of the LC.

+ BL shows the date of shipment as December 10

Consequently, the documents must be presented no later than December 21 even though the LC stipulates a presentation period of 15 days after the date of shipment.

In short, the beneficiary must present the documents to the issuing bank or the nominated bank (if required) no later than the last day for presentation under the LC and in any case no later than the expiry date, whichever occurs first.

3/ Reality has shown that there are cases where the issuing bank does the applicant a favour:

Example 1:

When the documents have arrived at the issuing bank’s counter while the goods have not arrived at the port of discharge, the applicant, who does not want to pay before the goods arrive, asks the issuing bank to raise one or more invalid discrepancies to refuse the documents with the purpose of delaying the payment and waiting for the goods to arrive.

I must say that reputable banks never do this wrong thing.

Example 2:

According to UCP 600 article 5, Banks deal with documents and not with goods, services or performance to which the documents may relate. However, there are cases where the issuing bank intentionally delays payment to enable the applicant to obtain a court order to suspend payment pending a trial related to the quality of the goods.

I must also say that reputable banks never do this wrong thing.

Example 3:

…

Best regards,

Mr. Old Man