Article 16(c) (iii)

[thanhtu88]

Hi,
I have the following case. Could you pls give me your comment and advice:
Issuing bank raise the discpreancy under MT999 (because there is no Swift key to create MT734). In this msg, Issuing bank stated:
“WE ARE HOLDING THE DOCUMENTS AT OUR COUNTER AT YOUR RISKS AND DISPOSAL.
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HOWEVER, IN THE CASE THE APPLICANT ACCEPTS YOUR DISCPREPANT DOCUMENTS, WE WILL RELEASE THEM WITHOUT FURTHER REFER TO YOU UNLESS WE RECEIVE YOUR CONTRARY INSTRUCTIONS BEFOREHAND.”.
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The presenting bank argue that they disagree with Issuing bank’s disposal instruction because Issuing bank do not act as per Art16c UCP600. The 1st above paragraph refers to Art16c(iii)a. The 2nd paragraph refers to Art 16c (iii)b. Hence, Issuing bank has combined two instructions in one discrepancy notice which explicitly violates Art16c(iii) and therefore not valid. Each disposal instruction is separate and clearly differentiated by the word ‘OR’.
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For the above case, pls give me your kind advice. Whether the Issuing bank, or the Presenting bank, is correct? Is the refusal notice of Issuing bank is valid?
Thanks and best regards

[nesarul]

Dear,
First of all we all have to agree that when Issuing Bank reject a presentation, the owner of the document is the presenter. It is the irrevocable right of the presenter is have a precise and unambiguous statement from the issuing bank that:
1. The issuing Bank refuse the presentation.
2. All discrepancies based on which its presentation is declined by the obligator
3. status of the document.
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In the notice of refusal....the disposition of documents is clearly conflicting each other.
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Hence from my point of view the stated notice of refusal is incomplete and there the issuing bank id precluded from claiming that the respective presentation is discrepant according to sub-article 16(f) hence must honour.
nesar

[shahriar]

i agree with the answer given. the two statements are contradictory. see ICC opinion R540 and R418 for detail.

[abrar]

Hi,
I have the following case. Could you pls give me your comment and advice:
Issuing bank raise the discpreancy under MT999 (because there is no Swift key to create MT734). In this msg, Issuing bank stated:
“WE ARE HOLDING THE DOCUMENTS AT OUR COUNTER AT YOUR RISKS AND DISPOSAL.
.
HOWEVER, IN THE CASE THE APPLICANT ACCEPTS YOUR DISCPREPANT DOCUMENTS, WE WILL RELEASE THEM WITHOUT FURTHER REFER TO YOU UNLESS WE RECEIVE YOUR CONTRARY INSTRUCTIONS BEFOREHAND.”.
.
The presenting bank argue that they disagree with Issuing bank’s disposal instruction because Issuing bank do not act as per Art16c UCP600. The 1st above paragraph refers to Art16c(iii)a. The 2nd paragraph refers to Art 16c (iii)b. Hence, Issuing bank has combined two instructions in one discrepancy notice which explicitly violates Art16c(iii) and therefore not valid. Each disposal instruction is separate and clearly differentiated by the word ‘OR’.
.
For the above case, pls give me your kind advice. Whether the Issuing bank, or the Presenting bank, is correct? Is the refusal notice of Issuing bank is valid?
Thanks and best regards

Fully respecting the responses already given, I would like to play the devil's advocate on this issue, and offer a contrasting view.

Granted that the notice has not been given in the strict manner prescribed under sub-article 16 c (iii), nevertheless, my view is that there is an intended implication that the notice has been given as under sub-article 16 c (iii) b).

There has to be a presumption that the pre-notice waiver has already been sought as under sub-article 16 b, and the implied intent as per notice of refusal given by the issuing bank in this case, is that documents are being held at the disposal of the presenter until such time that the issuing bank receives applicant's waiver. If it receives the waiver it will release the documents unless it receives alternative disposal instructions from the presenter prior to waiver being given.

Many of the disputes surrounding this issue was due to the absence of a provision similar to UCP600 sub-article 16 c (iii) (b) under UCP500, where banks were precluded from refusal, if for example, having given a notice of refusal and declaring that the issuing bank was holding documents at diposal of presenter, it subsequenty released documents to the applicant, againt waiver, but without first seeking permission from the presenter. Whilst the intention of the issuing bank may have been sound, this technical lapse was pounced on by beneficiaries, presenting banks, and lawyers, seeking to enforce the issuing bank's payment obligation based on a technical lapse of adherence to the preclusion rule. It was this issue which brought about the introduction of sub-article 16 c (iii) b) in UCP600, allowing the bank to progress and facilitate payment,rather than sitting on documents.

It is also interesting to note that the concept of the word "disposal" is now absent from UCP600, and although implied, there is a degree of uncertainty as to whether in view of sub-article 16 c (iii) (b) the requirement to hold documents at the "disposal " of the presenterhas been retained. Commonsense would dictate this should still be the case.

So, in the case of “WE ARE HOLDING THE DOCUMENTS AT OUR COUNTER AT YOUR RISKS AND DISPOSAL" the issuing bank is not intending to seek further instructions from the presenter (as required under 16 c (iii) a)), because the issuing bank then states : "HOWEVER, IN THE CASE THE APPLICANT ACCEPTS YOUR DISCPREPANT DOCUMENTS, WE WILL RELEASE THEM WITHOUT FURTHER REFER TO YOU UNLESS WE RECEIVE YOUR CONTRARY INSTRUCTIONS BEFOREHAND.”, implying that the documents will be released to the applicant (against waiver), unless the presenting bank provides alternative instructions in the meantime. This therefore, in my view, (and although not quoting the prescribed text verbatim) is the valid serving of a notice of refusal under the provisions of sub-article 16 c (iii) (b).

[nesarul]

Dear Abrar,
What does the disposition of "HOLDING THE DOCUMENT AT THE DISPOSAL OF OF THE PRESENTER" MEAN:
TO ME ITS MEAN THAT THE DOCUMENTS IS HELD AT THE COUNTER OF THE ISSUING BANK FOR DISPOSAL OF THE PRESENTER.......... HENCE THE OWNERSHIP OF THE DOCUMENT LIES WITH THE PRESENTER..... SO YOUR PREMISE:

the issuing bank is not intending to seek further instructions from the presenter (as required under 16 c (iii) a))

SEEM TO ME WRONG... FOR INFORMATION I HEREBY REFER ICC OFFICIAL OPINION R-540: I.E.

the position has clearly been stated along the lines that if an issuing bank states: "Documents held at your risk and disposal", it should not release such documents until it has the approval of the presenters to the settlement

ON THE CONTRARY, AFTER GIVING THIS DISPOSITION, MAKING ANOTHER DISPOSITION THAT :

HOWEVER, IN THE CASE THE APPLICANT ACCEPTS YOUR DISCPREPANT DOCUMENTS, WE WILL RELEASE THEM WITHOUT FURTHER REFER TO YOU UNLESS WE RECEIVE YOUR CONTRARY INSTRUCTIONS BEFOREHAND.”.

IS CONTRADICTING WITH THE FORMER DISPOSITION.
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THE ISSUING HAS NO RIGHT TO RELEASE THE DOCUMENT AFTER DECLARING THE DISPOSITION
""HOLDING THE DOCUMENT AT THE DISPOSAL OF OF THE PRESENTER"
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YOUR COMMENT APPRECIATED....
REGARDS
NESAR

[abrar]

Dear Abrar,
What does the disposition of "HOLDING THE DOCUMENT AT THE DISPOSAL OF OF THE PRESENTER" MEAN:
TO ME ITS MEAN THAT THE DOCUMENTS IS HELD AT THE COUNTER OF THE ISSUING BANK FOR DISPOSAL OF THE PRESENTER.......... HENCE THE OWNERSHIP OF THE DOCUMENT LIES WITH THE PRESENTER..... SO YOUR PREMISE:

the issuing bank is not intending to seek further instructions from the presenter (as required under 16 c (iii) a))

SEEM TO ME WRONG... FOR INFORMATION I HEREBY REFER ICC OFFICIAL OPINION R-540: I.E.

the position has clearly been stated along the lines that if an issuing bank states: "Documents held at your risk and disposal", it should not release such documents until it has the approval of the presenters to the settlement

ON THE CONTRARY, AFTER GIVING THIS DISPOSITION, MAKING ANOTHER DISPOSITION THAT :

HOWEVER, IN THE CASE THE APPLICANT ACCEPTS YOUR DISCPREPANT DOCUMENTS, WE WILL RELEASE THEM WITHOUT FURTHER REFER TO YOU UNLESS WE RECEIVE YOUR CONTRARY INSTRUCTIONS BEFOREHAND.”.

IS CONTRADICTING WITH THE FORMER DISPOSITION.
.
THE ISSUING HAS NO RIGHT TO RELEASE THE DOCUMENT AFTER DECLARING THE DISPOSITION
""HOLDING THE DOCUMENT AT THE DISPOSAL OF OF THE PRESENTER"
.
YOUR COMMENT APPRECIATED....
REGARDS
NESAR

Dear Nesar

ICC opinion points towards the requirement to provide a refusal notice in line with one of the four options available under sub-article 16 c iii, and that these should not be combined. However, in my view I do not see the notice given in the query as a combined notice, mutually exclusive of each other. Rather, the first statement regarding the holding of documents at the “disposal of the presenter” complements and reinforces this silent but nevertheless implied obligation under sub-article 16 c (iii) (b). The only distinction being, that the option as under sub-article 16 c (iii) (a) is available where waiver has not been sought, and the option as under sub-article 16 c (iii) (b) is available where waiver has already been sought.

The beneficiary’s right to control the disposal of documents remains paramount at all times , and this is not compromised by the provision of sub-article 16 c (iii) (b). Instead, what this sub-article seeks to articulate is the negation of the beneficiary’s right to refuse the release of documents after the issuing bank agrees to accept a waiver. Up to this point it is understood, the beneficiary is free to provide whatever disposal instruction he so pleases.

The point which I was making in my previous post, is that by stating “We are holding documents at our counters at your risk and disposal” (but note, excluding reference to seeking further instructions), and simultaneously stating that the documents will be released to the applicant against waiver, unless the banks receives the presenter’s prior disposal instructions, does not give rise to a preclusion situation as under sub-article 16 (f). It should be viewed as a single notice being provided under sub-article 16 c (iii) (b), and not as a combined notice being provided under sub-article 16 c (iii) (a) and 16 c (iii) (b) together. There is no contradiction here. The first statement indicating that the documents are being held at the presenter’s disposal is explicit, whereas in the second statement (as is the case in the whole of sub-article 16 c) there is an implication that the documents remain held at presenter’s disposal until receipt and acceptance acceptance of waiver.

I am not familiar with Opinion R540, (presumably this was given under UCP500?) but from the extract provided, I see no conflict with my view. The opinion appears to indicate that if a bank states it is holding documents at the disposal of the presenter (as would be the case if given under sub-article 16 c (iii) (a)) , it should continue to do so, unless and until the presenter provides disposal instructions. This should be contrasted with the situation under sub-article 16 c (iii) (b) (which the opinion could not address) where waiver has been sought and the documents remain at presenter’s disposal until the waiver is accepted.

There has in fact been a 1987 court case relating to an LC subject to UCP400 ( Co-operative Centrale v Sumitomo Bank Ltd, The Royan) under which the refusal notice was issued as : “Please consider these documents at your disposal until we receive our principal’s instructions concerning the discrepancies mentioned in your schedules”. This was reviewed in light of the then article 16 of UCP400, and the Court of Appeal held that there was no doubt that the documents were being held at the disposal of the presenters. You will note that the notice of refusal in the query is broadly similar to the above, and there seems no reason to doubt that a similar notice as in the court case, if issued under an LC subject to UCP 600, would comply under sub-article 16 c (iii) (b).

[nesarul]

Dear Abrar,

it should continue to do so, unless and until the presenter provides disposal instructions. This should be contrasted with the situation under sub-article 16 c (iii) (b) (which the opinion could not address) where waiver has been sought and the documents remain at presenter’s disposal until the waiver is accepted

your statement seems to be wrong.......

This particular opinion further stated that

the position has clearly been stated along the lines that if an issuing bank states: "Documents held at your risk and disposal", it should not release such documents until it has the approval of the presenters to the settlement. Should it, nevertheless, release the documents, and should the presenter and/or beneficiary object on the basis that they may have found an alternative buyer, the issuing bank may find itself liable for any claims (or wording to similar effect), the emphasis here being that a refusal notice must comply with the content of Article 14 to represent a valid rejection.

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Your comment is appreciated
Nesar

[abrar]

Dear Abrar,

it should continue to do so, unless and until the presenter provides disposal instructions. This should be contrasted with the situation under sub-article 16 c (iii) (b) (which the opinion could not address) where waiver has been sought and the documents remain at presenter’s disposal until the waiver is accepted

your statement seems to be wrong.......

This particular opinion further stated that

the position has clearly been stated along the lines that if an issuing bank states: "Documents held at your risk and disposal", it should not release such documents until it has the approval of the presenters to the settlement. Should it, nevertheless, release the documents, and should the presenter and/or beneficiary object on the basis that they may have found an alternative buyer, the issuing bank may find itself liable for any claims (or wording to similar effect), the emphasis here being that a refusal notice must comply with the content of Article 14 to represent a valid rejection.

.
Your comment is appreciated
Nesar

Dear Nesar

Focusing on the ICC Opinion, my view is that it should be looked at in context, and from the viewpoint of the previous rules (400/500?). It appears to me that the Opinion relates to a case where the notice of refusal stated that documents were being held at presenter's disposal, and nothing else, i.e there was no further qualification as to the disposition.

Of course, if the bank represents that it is doing something, but then proceeds to do something else, it would be liable, and precluded from dishonouring. But, the case in point, is not analogous. Here, we have a statement which declares that documents are being held at disposal, but that waiver has been sought (implied) and that documents will be released against waiver. If we consider the two statements as one, there is nothing in the combined statement which detracts from the representation given per notice of refusal under sub-article 16 c (iii) (b). It should be remembered that the representation under this sub-article is also that documents remain held at presenter's disposal, but only until the waiver is accepted.

[nesarul]

Dear Abrar,
I think we are delivering our logic based on two different proposition.
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You make emphasis on holding the document and giving no impotance on the word at your disposal which helps you to connect to applicant waiver.......and thats why you reach in conclusion that the proposed discrepant notice is met the requirement od sub-article 16(c)(iii)(b)...
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My logic give some weight on document held "At PRESENTER DISPOSAL" which tent to believe me that the issuing bank can not take any further action without consent of the presenter.....which tend me to sub-article 16(c)(iii)(a).... and then conflicted with latter disposition of document i.e. applicant waiver....
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regards
nesar

[iLC]

Great discussion indeed and induced me to jump into it

I will start from the beginning. The original question quoted;

Part 1: WE ARE HOLDING THE DOCUMENTS AT OUR COUNTER AT YOUR RISKS AND DISPOSAL.This part means that beneficiary is now the owner of the document which is true for all refused document. Without part 2, this is a clear instruction.

Part 2: HOWEVER, IN THE CASE THE APPLICANT ACCEPTS YOUR DISCPREPANT DOCUMENTS, WE WILL RELEASE THEM WITHOUT FURTHER REFER TO YOU UNLESS WE RECEIVE YOUR CONTRARY INSTRUCTIONS BEFOREHAND.”.This part means that the issuing bank will release the document if waiver is received from the applicant. But this part makes part on conditional by saying “HOWEVER, IN THE CASE….”
The corresponding UCP articles are
a) that the bank is holding the documents pending further instructions from the presenter; or (This has the similar effect as part 1)
b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or

the highlighted lines indicates that option (b) includes option (a) subject to a condition of applicant’s waiver. So apparently option (b) is similar to the lines mentioned in the original question. So in my opinion the refusal is complying.

i do understand that there is a considerable concern over the "disposal instruction". in this regard i believe there is no real difference between

that the issuing bank is holding the documents and
We Are Holding The Documents At Our Counter At Your Risks And Disposal

[Lordster]

FAR too much over-the-top technical jargon here!

in MY opinion - the issuing bank has every right to state this, the bank i work for quotes similar wording on a rejection message.
They are SIMPLY saying that they are holding documents on at the presenters disposal whilst discrepancies are referred to the applicant.
In absence on instructions to the contrary from the presenter, ie. to return documents to them, the issuing bank will release documents to the applicant upon their acceptance of discrepancies, triggering payment less a discrepancy fee.

Seems pretty straight forward to me.