DOCDEX 359
A non-bank issued a documentary credit.
The credit was routed via a number of different banks, primarily due to the absence of SWIFT keys between some of the parties, but also due to the fact that not all parties were comfortable with a non-bank issued credit.
Included within the terms of the credit was a clause that stated payment would only be effected against credit-complying documents and payment from the applicant.
Although the presented documents were discrepant, the issuing party advised that the applicant had accepted the documents despite discrepancies and that payment would be made on the maturity date. Payment was not forthcoming on this date.
A number of key questions were asked:
Is an issuing party allowed to incorporate the UCP 600 into a credit when payment is contingent upon payment by the applicant?
- Such a contingency is a modification to UCP 600. Whilst not encouraged, there is nothing in UCP 600 to prohibit it.
Is the issuing party (a non-bank) allowed to use the SWIFT MT700 format?
- There are no restrictions in respect of who can use the MT700 format. All that is required is a SWIFT KEY.
Is there any point in checking documents when settlement is contingent upon payment by the applicant?
- The undertaking of the issuing bank, when such a contingency is included, is undermined. However, there could be good reasons why the documents should still be examined.
Is the issuing party obligated to honour?
- In view of the fact that the issuing party stated that the applicant had accepted the documents and that payment would be made on maturity date, then they are obligated to honour at maturity.
DOCDEX 358
A credit was issued, payable at sight, which included a clause within the additional conditions referring to the underlying contract and the requirements thereunder. There was no requirement for a document to indicate performance of these requirements.
The issuing bank subsequently sent the advising bank a request for cancellation of the credit, which was based upon the clause mentioned above. The beneficiary did not accept this and, at a later date, presented documents.
The documents were found to be compliant by the nominated bank and sent to the issuing bank. However, the issuing bank returned the documents as they considered the credit to be cancelled. The question was raised as to whether or not the issuing bank was obligated to pay.
It was decided that the clause within the additional conditions was non-documentary in nature and was therefore to be disregarded.
In view of the fact that the issuing bank did not issue a notice of refusal in accordance with UCP 600 article 16, they were precluded from claiming that documents were non-compliant.
As such, the issuing bank was obligated to pay. Any dispute between contractual parties in respect to the underlying contract is outside the scope of UCP 600.
DOCDEX 357
A credit was issued payable at 150 days from the date of the transport document.
Documents were presented and ultimately accepted by the issuing bank and the maturity date for honour was confirmed.
Prior to the maturity date, the applicant obtained a Court Order preventing the issuing bank from paying at maturity.
A number of issues were raised:
Can the applicant of a letter of credit cancel the credit without the consent of the beneficiary?
- No, UCP 600 does not allow this.
Can a local court prevent payment via a Court Order, even though the issuing bank had previously committed to pay at maturity?
- Banks are compelled to comply with such Court Orders. This is a matter solely subject to the applicable law.