Banking- Letter of Credit- UCP 600

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Prashant Deshpande (Querist)
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20 November 2023 We have few questions of the Documentarty Credit and UCP guidelines

1. Can we challenge the discrepancies raised by issuing bank under Letter of Credit, especially related to invoice descriptions, if yes, how to challenge and how to prove that discrepancy raised is wrong.

2. WHen we submitted the documents to our bank and our bank shared the POD of documents sent to issuing bank, but our customer is saying that the issuing bank has not received the documents. Is there any way we can prove the claim of non receipt of documents

3.When the seller receives the discrepancy / refusal advice is it mandatory to respond to the refusal advice? If he does nothing or does not act upon the refusal intimation, then what issuing bank will do? If seller has to respond, what should he respond.

4.In case of discrepancy, if the buyer does not respond to issuing bank about what to do about the discrepant document, what issuing bank will do? Will they keep the documents in their custody, if yes, for how many days they can do so, if not, do they have to return the documents to negotiating bank or the seller directly.

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 Handling discrepancies and issues related to documentary credits (letters of credit) under the Uniform Customs and Practice for Documentary Credits (UCP 600) can be complex. Here are detailed responses to each of your questions:

### 1. Challenging Discrepancies Raised by Issuing Bank

Yes, discrepancies raised by the issuing bank can be challenged under a letter of credit. Here’s how you can do it:

- **Examine the Discrepancies**: Carefully review the discrepancies cited by the issuing bank. Compare them against the terms of the letter of credit and the relevant UCP 600 articles to determine if they are valid.

- **Provide Evidence**: If you believe a discrepancy is incorrect, gather evidence to support your claim. This might include the letter of credit itself, shipping documents, commercial invoices, and any communication that clarifies the issue.

- **Communication**: Communicate your challenge to the issuing bank, usually through your advising or negotiating bank. Provide a detailed explanation and supporting documents that counter the discrepancy.

- **UCP 600 Articles**: Refer to the specific UCP 600 articles that support your position. For instance, if the discrepancy is related to invoice descriptions, ensure that the invoice matches the description of goods in the letter of credit and refer to Article 18 (Commercial Invoice) of UCP 600.

- **Request Review**: Formally request the issuing bank to review and reconsider the discrepancy based on the provided evidence.

### 2. Proving Document Receipt by Issuing Bank

If the issuing bank claims non-receipt of documents while you have proof of dispatch:

- **Proof of Dispatch**: Obtain proof of dispatch from your bank (e.g., proof of delivery or a tracking number). This should include details like the courier service used and the tracking information.

- **Follow-up**: Contact the issuing bank directly or through your bank to confirm receipt. Provide them with the tracking details and proof of dispatch.

- **Courier Service**: Contact the courier service to get confirmation of delivery. They can provide detailed delivery reports and potentially a signed delivery receipt from the issuing bank.

### 3. Responding to Discrepancy / Refusal Advice

When a seller receives a discrepancy/refusal advice:

- **Mandatory Response**: While it’s not mandatory to respond, it’s highly advisable to do so to avoid negative consequences. The response should be prompt and address each discrepancy raised.

- **Options for Response**:
- **Correct and Resubmit**: If discrepancies are valid, correct the documents and resubmit them.
- **Request Waiver**: Ask the buyer to waive the discrepancies. If the buyer agrees, the issuing bank will typically honor the presentation.
- **Provide Clarification**: If you believe the discrepancies are invalid, provide evidence and clarification to dispute them.

- **Consequences of No Response**: If you do nothing, the issuing bank may either:
- Return the documents to the presenting bank.
- Hold the documents pending further instructions, but this is typically for a limited time (often up to 7 days).

### 4. Issuing Bank Actions When Buyer Does Not Respond

In case of discrepancies and if the buyer does not provide instructions:

- **Document Custody**: The issuing bank usually holds the documents in their custody temporarily, awaiting instructions from the applicant (buyer). The period for holding documents is typically up to 7 days, as per UCP 600.

- **Return of Documents**: If the buyer does not respond within this period, the issuing bank is likely to return the documents to the presenting bank (or seller). The return can be immediate or after the prescribed period if no instructions are received.

- **UCP 600 Reference**: Article 16 (Discrepant Documents, Waiver, and Notice) provides guidance on the procedures for handling discrepancies, including the timeframe for holding documents.

### Summary

- **Challenge discrepancies**: with clear evidence and by referencing UCP 600.
- **Prove document dispatch**: through courier tracking and direct communication.
- **Respond to discrepancy advice**: promptly, either correcting, disputing, or requesting waivers.
- **Issuing bank actions**: typically involve holding or returning documents if no buyer instructions are received.

For specific cases and complex issues, consulting with a trade finance expert or legal advisor is advisable.