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In our previous blog, we noted that refusal rates and spurious discrepancies were still proving to be of concern.

This has been reflected in the conclusions made by the ICC Banking Commission at its Jakarta meeting in April 2017 in which it recommended three work-streams to be taken forward:

• Guidance: More comprehensive and widely circulated training and guidance
• Access: Review pricing and digital availability of UCP rules and practices
• Marketing: Smart usage of information to achieve greater awareness by practitioners

But the market should not just await direction from the ICC. There is plenty that can be done in advance of such support.

In documentary credit operations, the advising of discrepancies in documents is probably the most contentious issue that a bank will face with its clients or another bank.

We have made the observation in our ‘Discrepant Documents' training module (refer to Training Modules / Documentary Credits in Practice) that each bank has a duty to educate its clients. Where a client has been faced with discrepancies, provision of an explanation of where the presentation has gone amiss can only prove beneficial for future presentations. However, most banks merely advise discrepancies as if they were inescapable and a fact of life. This is not so. By the manner in which a bank expresses a discrepancy and explains it clearly to a beneficiary, it can demonstrate an operational excellence that will set them apart from their peers.

Whether or not a bank refuses documents is based upon the content of the documents themselves, and their conformity to the terms and conditions of the credit, UCP and international standard banking practice. At the end of the day, the decision to accept or reject is often down to an individual document examiner in assessing compliance or otherwise, based on his or her individual knowledge, experience and judgement. However, any discrepancy should stand one particular test - "would you feel comfortable in justifying that discrepancy before a judge in a court of law?" Remember, in a worst-case scenario, it would be a court that would be asked to provide judgement if a dispute were not amicably resolved.

There are a number of simple tasks that can reduce discrepancy rates:

• Improved drafting of LC's by issuing banks.
• Thorough review of LC's by advising / confirming banks to understand any risks and implications.
• Beneficiaries to clearly understand the implications of providing certain documents and ensure they can meet timeframes and deadlines.
• Close and constant communication between beneficiary and logistics / document providers.
• Liaison between all parties in case of unforeseen problems: beneficiary / applicant / banks.
• Address problems prior to presentation of documents.
• Avoid ... to the maximum possible ... credits that exclude specific articles / sub-articles of UCP.

Ultimately, if a presentation is refused due to discrepancies, there are three options available to secure payment under the credit. In order of suggested preference:

1)        Correct the discrepancies, at least as far as is possible.

2)        Request the nominated bank contact the issuing bank for its agreement that the documents may be honoured or negotiated despite the noted discrepancies. The documents will be held with the nominated bank until the issuing bank responds indicating that the applicant has provided an acceptable waiver of the discrepancies.

3)        Request that the nominated bank forward the documents to the issuing bank for settlement. The documents are sent to the issuing bank as a presentation under the LC and honoured following the applicant issuing an acceptable waiver of the discrepancies.

Beneficiaries may find our ‘Document preparation' modules to be a significant aid in preparing documents under a documentary credit.

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