Second time unlucky

Dear Experts,

In the case described in issue 16 of Trade Exchange, the issuing bank receives a presentation, examines the presentation and determines the documents to be discrepant.

They issue a notice of refusal stating one discrepancy in the presentation.

According to UCP 600 Article 16 (c), the issuing bank in this case has only one chance to refuse the presentation when it decides to refuse to honour and it must give a SINGLE notice to that effect to the presenter.

The notice of refusal must clearly indicate the following three elements:

• that the bank is refusing the presentation
• each discrepancy in respect of which the bank refuses
• the disposal of presented documents.

The issuing bank in our case stated one discrepancy on which it based its SINGLE notice of refusal.

The problem arose for the issuing bank when the beneficiary and presenting bank correctly challenged the one stated discrepancy: “Airway bill indicates transhipment which is prohibited in the letter of credit”. The presenting bank correctly elaborated that this was not a discrepancy as under UCP 600 article 23 (c) (ii) “An air transport document indicating that transhipment will or may take place is acceptable, even if the credit prohibits transhipment”.

Based on this correct technical application of the UCP 600 rules, the issuing bank agreed that the stated discrepancy in its notice of refusal was not a valid discrepancy. However, the issuing bank then stated a further discrepancy: “Conflict in weight – weight in packing list stated as NET 198KG whereas weight in weight list states as NET 192KG”.

This conflict in data between the weight list and packing list is in fact a valid discrepancy.

According to Article 16 (d) of UCP 600, “data in a document must not conflict with data in that document, any other stipulated document or the credit”. Without doubt, there is a conflict in data between the packing list and the weight list.

The key question now is whether the issuing bank may refuse based on a newly stated but valid discrepancy.

The answer is a definitive no!

This discrepancy was not stated in the issuing bank’s first notice of refusal and so the issuing bank has failed to act in accordance with the provisions of Article 16 (f) of UCP 600. As a result it shall be “precluded” or prevented from claiming that the documents do not constitute a complying presentation: “If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation”.

Therefore, despite the presentation of discrepant documents, the beneficiary has the right to be paid since the issuing bank failed to follow the applicable UCP 600 rules and list the actual discrepancy in its first notice of refusal.

For me this case clearly highlights the importance of the ICC rules, without which this case would become a legal issue that is not covered in the laws of most jurisdictions.

No second chance for the issuing bank!

Nadezhda Khrustaleva
Demirbank, Kyrgyz Republic