CDCS study materials-Refusing documents

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CDCS study materials-Refusing documents

Refusing documents

Chapter-18



18.1 Handling discrepant documents
Once examination has been completed and after taking account of any regulatory or legislative requirements, a document examiner will decide whether or not the documents comply. If the documents comply, the document examiner will take up the documents and arrange a settlement.

If the documents do not comply, the document examiner will refuse them.This chapter looks at how documents that are discrepant should be handled.

18.1.1 An ICC overview: examining documents, waiving discrepancies and issuing
notice under UCP 600

Following the presentation, the examination process and the refusal of documents are primarily governed by the provisions of UCP 600, sub-article 14(a) and (b), and UCP 600, article 16.
UCP 600, sub-articles 14(a) and (b), provide as follows.

a. A nominated bank acting on its nomination, a confirming bank, if
any, and the issuing bank must examine a presentation to determine, on
the basis of the documents alone, whether or not the documents appear
on their face to constitute a complying presentation.

b. A nominated bank acting on its nomination, a confirming bank, if
any, and the issuing bank shall each have a maximum of five banking
days following the day of presentation to determine if a presentation
is complying. This period is not curtailed or otherwise affected by the
occurrence on or after the date of presentation of any expiry date or 
last day for presentation.
UCP 600, article 16, provides as follows.
a. When a nominated bank acting on its nomination, a confirming
bank, if any, or the issuing bank determines that a presentation does not
comply, it may refuse to honour or negotiate.
b. When an issuing bank determines that a presentation does not comply,
it may in its sole judgement approach the applicant for a waiver of the
discrepancies. This does not, however, extend the period mentioned in
sub-article 14 (b).
c. When a nominated bank acting on its nomination, a confirming bank,
if any, or the issuing bank decides to refuse to honour or negotiate, it
must give a single notice to that effect to the presenter.
The notice must state:
i. that the bank is refusing to honour or negotiate; and
ii. each discrepancy in respect of which the bank refuses to honour
or negotiate; and
iii.
a) that the bank is holding the documents pending further
instructions from the presenter; or
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
c) that the bank is returning the documents; or
d) that the bank is acting in accordance with instructions previously
received from the presenter.
d. The notice required in sub-article 16 (c) must be given by
telecommunication or, if that is not possible, by other expeditious 
means no later than the close of the fifth banking day following the day of
presentation.
e. A nominated bank acting on its nomination, a confirming bank, if any,
or the issuing bank may, after providing notice required by sub-article 16
(c) (iii) (a) or (b), return the documents to the presenter at any time.
f. 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.
g. When an issuing bank refuses to honour or a confirming bank refuses
to honour or negotiate and has given notice to that effect in accordance
with this article, it shall then be entitled to claim a refund, with 
interest,of any reimbursement made.

To assist in understanding and interpreting these articles, and to remind issuing and confirming banks that deviation from these procedures may result in either bank facing preclusion from claiming that the documents are discrepant, the ICC Banking Commission issued an educational paper entitled Examination of Documents, Waiver of Discrepancies and Notice under UCP in April 2002. While originally written for application under UCP 500, articles 13 and 14, the paper is the basis of what follows, with suitable amendments to facilitate usage under UCP 600.

Introduction
UCP 600, sub-articles 14(a) and (b), and article 16, specifically prescribe the actions of an issuing, confirming or nominated bank in the examination of documents presented under a documentary credit. These sub-articles and article specifically dictate the process of examination of documents, the decision as to whether to take up or refuse the documents, the process of seeking waiver of discrepancies by the issuing bank, providing notice of discrepancies and the maximum time for the performance of the steps prescribed. Several variations on the performance of the prescribed procedures in UCP have evolved over the years, many of which are not in accordance with the UCP. The development of these practices is invariably outside the scope of the UCP and could place an issuing bank or confirming
bank at risk for not complying with the terms of the UCP.

To understand the specific steps outlined in the UCP, it is necessary to follow the process of examination of documents specifically as it is prescribed by UCP 600, and to examine each step and the individual requirements. This process is referenced within the descriptions detailed below.

Note: The following text only addresses the obligations of the issuing bank because it is the only bank authorised to seek a waiver from the applicant. Similar obligations may apply to the confirming bank, with the exception of the seeking of a waiver from the applicant.

Step 1: Examining documents
The first step in the process when documents are presented is to examine
them.
UCP 600 sub-article 14(b) states that the bank has a maximum of five banking days following the day of presentation in which to examine and determine whether a presentation is complying.
The maximum of five banking days should not be seen as automatically giving a five banking day period for every transaction. Specific circumstances within an issuing bank, or the number or type of required documents presented, may require that it takes the entire period to examine the documents, make a decision whether to take up or refuse the documents, and inform the presenter accordingly. However, this period is not automatically expected for each presentation of documents. In most cases, the examination will be completed in fewer than five banking days following the day of presentation.

Step 2: Deciding whether documents comply or do not comply

Once documents have been examined, the issuing bank has to determine whether or not they appear on their face to be in compliance with the terms and conditions of the documentary credit.
◆◆ Documents comply – if the issuing bank determines that the documents comply with the terms and conditions of the documentary credit, it must take up the documents and effect settlement (UCP 600, sub-article 15(a)).
◆◆ Documents do not comply – if the issuing bank determines that the documents do not comply with the terms and conditions of the documentary credit, it is not required to take up the documents and effect settlement.

Step 3: Decide to refuse or seek a waiver
If the issuing bank determines that the documents do not comply, it has two options:

i. it may refuse the documents and provide notice of refusal; or
ii. it may seek the applicant’s waiver of the discrepancies.

◆◆ Give notice of refusal – if the issuing bank decides to refuse the documents, it must provide a notice in accordance with UCP 600, sub-article 16(c). This must be a single notice.

UCP 600, sub-article 16(c), requires that the notice of refusal give notice to that effect and must state all discrepancies in respect of which the issuing bank is refusing the documents. In addition, UCP 600, sub article 16(c)(iii), specifically provides that the notice must state the
following:

UCP 600, sub-article 16(d), prescribes the process if the bank decides to refuse the documents.

◆◆ Seek applicant waiver – UCP 600, sub-article 16(b), gives the issuing bank the option, in its sole judgment, to approach the applicant for a waiver of the discrepancies. There is no requirement on the part of the issuing bank to seek a waiver and any decision to do so is completely

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