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Second time unlucky

Read the full situation and winning solution. With recognition: Congratulations to our readers whose solutions were also recognised for their technical merit.

Here is your chance to demonstrate your ability to disentangle the most involved, contentious or just plain weird combinations of documents and to solve a puzzle in the field of documentary operations.

Our customer, the beneficiary of a letter of credit subject to UCP 600, shipped the goods by air and the documents were then presented to the issuing bank well in advance of the expiry date and within the presentation period.

However, the presentation was refused by the issuing bank, which stated the one following discrepancy:

“Airwaybill indicates transhipment which is prohibited in the letter of credit”

We disagreed, pointing out that even though transhipment was prohibited in the letter of credit and indicated in the airwaybill, this is not a discrepancy under UCP 600, article 23.

The issuing bank replied on the same day they received our disagreeing message and conceded that the transhipment discrepancy was not valid and thereby withdrawn, but that as issuing bank it was now refusing the documents with the one discrepancy:

“CONFLICT IN WEIGHT – weight in packing list stated as NET 198KG whereas weight in weight list states as NET 192KG”

Despite our protesting that the issuing bank had an obligation to pay, we have not yet received payment and the expiry date of the letter of credit is now more than one month ago.

Please clarify if the issuing bank must pay and let us know if we may pass your answer to the issuing bank?

We await your expert reply.


And the winning solution is...

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

With recognition

The following readers are recognised for their technical merit

(Alphabetical order)

  • Ulanbek Asanakunov

    Optima Bank, Kyrgyz Republic

  • Aneta Cvetkovska

    Komercijalna Banka, North Macedonia

  • Domenico Del Sorbo

    Trade & Export Finance Specialist, Italy

  • Vahe Grigoryan

    Converse Bank, Armenia

  • Nelli Kocharyan

    Converse Bank, Armenia

  • Riabi Lamia

    Attijaribank, Tunisia

  • Mariia Minaeva

    International Investment Bank, Russia

  • Elena Ristevska

    Komercijalna Banka, North Macedonia