Ambiguous and Plausible Wordings in a Notice of Refusal Sent by the L/C Issuing Banks (UCP 500 Article 14)

T.O.'s Comments on "Ambiguous and Plausible Wordings in a Notice of Refusal Sent by the L/C Issuing Banks - UCP 500 Article 14" by Alan C.Y. Liu

L/C Monitor, February 2000

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Question: Would the following wording of a notice of refusal be acceptable?
We hold documents at your disposal and refer the discrepancies to the applicant for waiver. If the discrepancies are accepted and waived by the applicant, we will release the relative documents to the applicant unless we receive your authenticated response by February 15, 2000 (or another specific date). In that case we will reimburse you according to your instructions.
The above means that the issuing bank can release the documents on February 16, 2000, to the applicant if the presenter does not respond by February 15, 2000. If such a wording were to be legally accepted, then lawyers would have no cases to fight, thus leading to ‘no cases, no money.?
Answer: T.O. Lee, T.O. Lee Consultants Ltd, Toronto, Canada
From time to time, certain bankers, perhaps upon the request of their customers or solely for their own interest, try to create some ‘home made? products, such as (i) new banking practices, (ii) special terms and conditions in the L/C (also known as soft clauses), and (iii) new messages or statements in the SWIFT protocol.
Unfortunately, either they do not have enough basic legal knowledge to do the creativity job well, or they have simply forgotten to ask their legal counsel to scan their new products for ‘viruses.?
The SWIFT messages given by Mr. Alan Liu are typical examples of these ‘immature?products. Bankers elsewhere may simply copy them without asking their legal counsel to scan them. And as more and more bankers use them they may one day become banking practice, or at least regional banking practice. It will then be more difficult to rectify.
I still remember the famous statement of Charles del Busto during his presentations in Hong Kong, which I heard many times afterwards when I communicated with him later:
‘My banker friends, please don’t forget that the stipulated documents, as long as they are unpaid, are still the property of the beneficiary. Once you have sent out your notice of discrepancies and payment refusal, you should have asked for the beneficiary’s written approval before you can release the documents to the applicant, even against a waiver.?
Mr. Liu’s message is not yet perfect. There may be some ambiguity in the issuing bank’s statement, on the one hand, making rules unilaterally for documents he has no right to dispose of, and on the other, telling the beneficiary that the documents are being held at his disposal. From my perspective ‘at his disposal?should not be subject to any conditions.
The knowledgeable beneficiary might reply as follows:
‘May I remind you that you have no right to set the rules because you don’t own the documents. We prefer to deal with the applicant ourselves. We may also try to sell to a third party in the meantime. Thanks for your good will.?
If the beneficiary chooses not to respond, then silence does not mean acceptance. The issuing bank releasing the documents to the applicant against a waiver, without the beneficiary’s approval, may face claims from the beneficiary who has sold the cargo to a third party in the meantime and asks for return of the documents.
On second thought, if the issuing bank finds out later that (i) the applicant has no money with which to reimburse the bank, (ii) the documents are fraudulent, or (iii) the applicant and the beneficiary belong to the same gang and are trying to double-cross the bank, then the issuing bank may face the following dilemma:

If the issuing bank refuses to pay the beneficiary, then the bank is violating its own promise to pay against the waiver and may be subject to claims from the beneficiary or the negotiating bank who has negotiated the documents in good faith with its rights well protected by law.
If the bank is forced to pay the beneficiary, it cannot recover the payment from the applicant who may declare bankruptcy.

From the risk management point of view, adding terms and conditions unilaterally in the SWIFT messages that do not respect the rights of the other parties may expose the issuing bank to potential dangers such as those described above.

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