Discrepant Document Returned And Discrepancy Fee

[MIA19]

Hi,
I have two cases, and I need your help.
Case 1
At the moment of paying presented documents, an issuing bank deducted a discrepancy fee, but didn't quote any of discrepancies.
In your opinion, are they precluded (as per art.16f of UCP 600) to deduct discrepancy fee as they didn't act in accordance with art. 16 c). I have found one official opinion (R741 / TA700rev) which in the analysis says that
'If the issuing bank does not provide such an indication, the presenter may seek, and the issuing bank must provide, such details. The actions of the issuing bank, as described in situation D, do not represent preclusion under sub-article 16 (f).'

I must say that I am confused.
when reading the art. 16 c: an issuing bank must give a single notice which should contain: that they are refusing to honour, each discrepancy, and holding instructions in respect documents
and art. 16f says that if issuing bank fails to do that it would be precluded from claiming that documents are discrepant.
I also remember (but I cannot find an opinion now) that even when presented bank quotes some discrepancies on the covering letter, issuing bank is obliged to issue advice of refusal, otherwise it is precluded as per 16f. So what am I missing?

Case 2
We returned discrepant documents to the presenting bank, asking for payment of our discrepancy fee. We received an answer that beneficiary doesn't want to pay it. Can an art. 37 apply here.

thanks and regards
Snježana

[abrar]

Case1. Remember, the IB always has the right to exercise 16 b and delay (within the 5 day period) issuing a notice of refusal (as required under 16 c). Therefore, if discrepancies are found but waived, the IB is still entitled to the discrepancy fee without needing to advise the presenter of the discrepancies found. An omission of a notice of refusal under these circumstances does not invoke the preclusion rule.

Case 2. Sub-art 37 c does not refer to the applicant bearing any charges; only that unrecovered charges due from beneficiary by the nominated/presenting/advising bank would be paid by the IB. Of course, the IB will wish to pass these charges back to the applicant, but strictly speaking, the latter issue falls outside UCP. In any case, it is debatable whether the applicant would agree to settle charges due to discrepancies over which it would have no control.

[MIA19]

Dear Abrar,
I am always glad to hear from you. Your replies always seem logical to me.
But in this case I can not convince myself that UCP 600 and particulary art. 16 b excuses IB from listing all discrepancies.
That means that IB must comply with 14 b, oherwise it is precluded.
It must list discrepancies although they are already quoted on cover letter of presenting bank.
But it must not list discrepancies if IB conntacted applicant for waiver, although it is entilted to deiscrepancy fee.
regards

[WanDan]

Hi,

IMHO Abrar is right in both cases.

But in this case I can not convince myself that UCP 600 and particulary art. 16 b excuses IB from listing all discrepancies.
That means that IB must comply with 14 b, oherwise it is precluded.

If the IB does not reject the documents no notice to the presenter is requiered by UCP 600. IB is entitled to a discrepancy fee if the L/C states so. Of course IB has to state the discrepancies found when asked to do so (cf. Opinion R741).

In case 2 article 37 is not applicable as the IB is not "another bank".

Hope this clarifies the matter.

Cheers,
Dan

[abrar]

Hi Mia

Yes, as per 14 b, an IB has 5 days to determine compliance and if discrepant, it has the option of either requesting waiver from the applicant and deciding to accept it, or alternatively issuing a notice of refusal. Some banks do both at the same time, but there is no requirement to issue a notice of refusal if the IB is confident that the applicant is likely to accept the waiver. The requirement under 16 c is only invoked if the IB decides to refuse, not simply because discrepancies have been found. If the discrepancies are acceptable to the applicant there is no need to refuse the document. Either way, a failure to issue a notice of refusal does not mean that no discrepancies were observed but simply, that the bank did not wish to refuse the documents. If discrepancies are observed, the fees would be payable, and unfortunately, it would be up to the beneficiary to find out what the discrepancies were giving rise to the fee. The only way that I see a challenge from the beneficiary is if the discrepancies were unjustified.

Of course, if the IB does not issue a notice of refusal within the 5 days then they must pay regardles

[MIA19]

Yes, in such situations IB can deduct discrepancy fee based on controversial or groundless discrepancies, putting beneficiary in position that they cannot disprove it, or maybe correct documents by sending new ones, or just to have information what was 'wrong' as to improve it in the next presentations. It encourage doutable deductions.
Furthermore it results in additional unnecessary correspondence (as we have situation now between issuing bank and us) trying to persuade them that they should have listed discrepancies, losing our time and energy. In my opinion beneficiary is entitled to find out what was wrong with their presentation.
regards

[abrar]

You could also point out that disclosing discrepancies to the applicant without first allowing them to be corrected ( if possible) by the beneficiary is perhaps unethical and potentially has the effect of demonstrating that the supplier was unable to fulfil the terms of the contract, and compromises the relataionship, creating a loss of confidence on the buyer's part that the seller may not be able to perform properly under future contracts.

However, the intention in allowing the IB to unilaterally approach the applicant for waiver is for the best of intentions; in speeding up the payment process, especially if the discrepancies are minor and there is every expectation that the applicant will grant the waiver.

[VAJAY26]

Hi Snježana,

Referring to your case no. 1 Issuing bank must provide notice of refusal even if any discrepancies quoted on covering schedule of presenting bank. And if they have not acted with respect to notify discrepancy as per article 16C, they precluded from claiming that the docs are discrepant. Hence must remit the proceeds without deduction of discrepancy fees.

With respect to Case no. 2:
Yes article 37 C applies, Non recovery of discrepancies fees from Beneficiary remains Issuing bank liability.

[tituisrt]

hi
The third “pre-summer-vacation-ICC-Opinion-Review” is R741 / TA700rev
.
ICCs answer: The issuing bank is entitled to a discrepancy fee as outlined in the LC. They should however inform the presenter of the discrepancies. This can be either in the advice of payment or in a separate communication. Note that the issuing bank is not required to refuse the presentation if they contact the applicant for a waiver and receive same. Article 16(f) does not apply in this case.
.
thanks & Regards