Invalid discrepancies...

[Navi]

Hi Friends,
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This is not a real life case but I wonder yr ideas.
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Consider a case you ( as issuing bank) received LC documents, raised discrepancies and advised yr refusal to presenting bank as per UCP 600 16,c,iii,b and asked applicant for waive. However, discrepancies were not correct and presenting bank rejected according the UCP and asked issuing bank for payment. On the other hand, applicant refused to accept discrepancies advised previously by issuing bank and requested issuing bank to return docs. to beneficiary.
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Can the applicant insist on refusing docs despite the discrepancies advised by issuing bank not correct?
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Regards.

[vcraj71]

The issuing bank is liable to pay for credit complaint documents, if issuing bank quotes invalid descrepancy and the presenting bank refuted the same, then whether applicant accept the same or not
issuing bank is bound to pay as per its undertaking to the beneficiary. Since issuing bank, confirming bank and beneficiary are the only three parties to the letter of credit, once it is issued and confirmed.

regards
raj vc

[nesarul]

Dear Navi,
This is indeed a very tricky question for me. I am affraid that i can not make any comments on that,
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My point of view [pls correct me if i am in a wrong point]:

at the end of the night[disput], i think the sun [solution] will arise .........
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if the raised discrepancy is not valid, issuing bank should have recourse on it over applicant despite isuing bank's position is self contradictory.
regards
nesar

[shahriar]

dear navi,

very good question. honestly never though of it.

i agree with nesar though. the fact is that the relation between the applicant and the beneficiary is not governed by UCP 600. ICC rules like ISP98 indicates that if the beneficiary once accepted the discrepancies, it can not reject the same. i dont think we can apply the same rule for applicant and issuing bank here.

the end result will depend on the applicant - issuing bank contract and applicable law. i wonder whether the applicant can demand a compensation for this mistake

[picant]

Hi Pals,

In Italy, banks examine the documents and in case of discrepancies inform the applicant for approval, naturally in the stated period of 5 days. If not approved they provide to inform the presenting bank lifting discrepancies as pert art. 16 UCP. In this case, the bank can once again revise and re-check, before making an official reject. If discrepancies are pretestous or invalid, they will inform the applicant, avoiding to contact presenting bank, or try to tell the applicant that "we try".

Other comments appreciated

Ciao

[nesarul]

dear, i am affraid that i make another comment on it. Let analysis this case in a bit ellaborate way: first of all, we have to letter of credit transaction. here two main party is issuing bank and beneficiary and in ur case there is a nominated bank. The discrepancy raised by the issuing bank has been refuted by the nominated bank and the beneficiary is innocent one. So the beneficiary is entiteled to receive its payment from issuing bank in good value (including interest) so issuing bank has nothing to do but to honour its undertaking (including interest). . Now 2nd part of the question is whether issuing bank is entitled to receive its cover from the applicant or not on the basis of contract of reimbursement. As we know applicant interest is vested[emphasis added] on the issuing bank's activities, so issuing bank should have the right to cover its original amount paid to beneficiary.... the question of interest depends upon applicable law and other related matter. Pls correct me if i am in wrong point. Nesar

[iLC]

good discussion. appreciated. i have another thought. in case of discrepancy, the issuing bank seek waiver from the applicant. at the same time, issuing bank is not bound to accept the waiver and also can waive a discrepancy on its sole discretion. if this is true, then i think we can solve this matter quite easily.

one more thing. UCP 600 says banks deals with document. it also means that applicant and beneficiary deals with goods. i believe no court will allow the applicant to run away from its obligation simply because there are some so called discrepancies in the documents.

looking for more opinions

[Navi]

Thanks friends for your satisfying commnents...
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In the case I was in doubt whether the issuing bank will be under risk of not getting funds from applicant due to its wrong discrepancy advice.
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I think now that it will be unjust to relieve applicant from its obligation since docs were in fact complying. What issuing bank has to do, may be advice applicant this time that docs were complying and previous advice is null ad void...
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Regards

[The Benche]

I think now that it will be unjust to relieve applicant from its obligation since docs were in fact complying. What issuing bank has to do, may be advice applicant this time that docs were complying and previous advice is null ad void...

Interesting topic - interesting answers!