Refuse To Honor Vs. Refuse To Negotiate

[nesarul]

Dear all,
issuing bank = bank A
Confirming bank = Bank B
Credit available at Bank B by negotiation [emphasis added]
benefciary presented the document to the Bank B
Bank B examine the document and observed discrepancy:
discrepancy notice:
we refuse to honour the presentation for the following discrepancy:
1. late shipment
we are holding the document pending further instruction from your end.
Beneficiary's allegation:
since credit is available at bank B couter by negotiation,, Bank B is not allowed to honour the presentation. consequently, mentioning refuse to honour rather than refuse to negotiate violated sub article 16(c) and as per sub article 16(c)[SINGLE NOTICE] & 16(f) Bank B must negotiate the document.
is the beneficiary right? and why?
regards
nesar

[Navi]

Hi nesarul,
.
İnteresting case. I would not like this beneficiary to be my customer
.
Honour means:
* to pay at sight...
* to incur a deferred payment undertaking...
* to accept a draft ...and pay at maturity...
.
As per 16 (c) confirming bank, in notice of refusal, must state that they are refusing to negotiate (rather than honour) as the credit is available by negotiation. Here beneficiary is right.
However, in my opinion, this does not oblige confirming bank to negotiate as per 16(f). Article 16(c) article requires shortly :
* notice of refusal of docs.
* stating each discrepancy.
* whether holding docs or returning etc...
and
Confirming bank acted as per spirit of the article 16(c). This is my opinion...
.
regrds

[cristiand969]

Dear Nesar,
The confirming bank gave a single notice in accordance with art 16c
In the context of described transaction the wording ' we refuse to honor' is to be intrepreted as 'refusal of negotiation'. Please note that 'negotiation without recourse' is ultimately an 'act of honoring a presentation' as far as the beneficiary is concerned. The confirming bank based on it confirmation has replaced the issuing bank obligation with theirs (in case of complying presentation). In this respect no difference should be associated between negotiate and honour from beneficiary point of view. Either negotiate or honour for beneficiary means that confirming bank is TO PAY a complying presentation. It is of no concern for the beneficiary the act of 'purchasing' documents (i.e negotiation) and/or honouring (paying) them when documents are not conform because negotiation or honouring actually represents THE WAY OF SETTLEMENT when a complying presentation has been taken up. Please note that art. 2 defines what actually represents a negotiation under a COMPLYING PRESENTATION.
The confirming bank incorporated in that sigle notice all mandatory elements: refusal statement, discrepancy observed and instructions for docs disposal.
The beneficiary wishes to pass his fault (late shipment) on confirming bank shoulders and this is not a beneficiary the banks are happy to work with.

[shahriar]

good nut to crack at the day end strictly speaking, honor and negotiation is not the same thing and question may raise. and you never know the court room. anything is possible. however my simple mind says that the intention of the confirming bank is clear here. there are refusing the document. though UCP600 guides on how a refusal advice should be written, there is no binding on the wordings.

regd

shahriar

[cristiand969]

Dear Shahriar,
I agree with you that negotiation and honour is not the same thing when speaking from different point of views. But for beneficiary I feel this is difference is not applicable.
You may want to remember that an advice of refusal sent by swift does not contain any wording regarding honouring or negotiation and MT 734 is merely titled 'Advice of refusal'. Therefore, I stick to my previous position that confirming bank has given to beneficiary a correct advice of refusal.
regards
cristian

[shahriar]

dear cristian,

i do agree with you. the notice of refusal comply in my opinion and i mentioned the same in my last post. about swift message, you are correct. but how can you be so sure that the message is send by swift? the confirming bank refused the document directly to the beneficiary; not a nominated bank. so its least likely that the confirming bank has employed swift in this case.

regd

shahriar

[iLC]

this is ridiculous. refusal is the main fact here. i can imagine a situation where a bank will say "hello!! i am refusing to honor but i can negotiate!!" swift or mail refusal is also immaterial since nesarul has mentioned the wording.

[Sharif]

Hi
We should look at the intention of both the beneficiary and the confirming bank. I must agree with Cristian that the beneficiary has tried to pass his fault (late shipment). So i think Bank B has done the right Job.
Sharif