SCENARIO - adapted from ICC Opinion TA744rev
Documents, including a full set of bills of lading issued to order of the issuing bank are presented under a documentary credit, and negotiated by the nominated bank, but subsequently found to be discrepant by the issuing bank.
The nominated bank received amended compliant documents within the stated presentation period. These documents were forwarded to the issuing bank indicating that the presentation should now be honoured.
Honour is not forthcoming despite the presentation of compliant documents; furthermore it is brought to the attention of the nominated bank that the issuing bank had previously endorsed an original bill of lading to order of the applicant, allowing the applicant to take delivery of the goods without payment.
The nominated bank reacted by informing the issuing bank that there exists no justification for raising a discrepancy or for refusing to honour in a situation where the issuing bank has facilitated the applicant taking delivery of the goods.
In response, the issuing bank made no mention of an original bill of lading being released to the applicant but merely pointed out that the documents were discrepant.
In the meantime, the nominated bank received a copy of the relevant bill of lading clearly indicating that the issuing bank had endorsed the original to order of the applicant.
Despite this evidence, the issuing bank still refused to honour on the basis that information had been received from the applicant that the goods were not in accordance with the goods description stated in the credit. It subsequently indicated that fraud was suspected and that, on such basis, honour would not be forthcoming. Furthermore, the issuing bank mentioned that under its law an allegation of fraud is sufficient to prevent honour, even without a court order.
ASSESSMENT
The problem that arises in this scenario is that the applicant managed to obtain delivery of the goods without honour being effected by the issuing bank.
This was achieved by the issuing bank releasing an endorsed original bill of lading to the applicant.
In view of the fact that the issuing bank continued to refuse to honour, it must return all of the documents - as originally presented - to the nominated bank. However, this is not possible, as one original bill of lading is no longer in its possession.
CONSEQUENCE
UCP 600 sub-article 16 (c) (iii) (a) makes it clear that the issuing bank must hold the documents until it receives further instructions from the presenter, and (b) that the issuing bank must hold the documents until it receives an acceptable waiver of discrepancies from the applicant.
Having made the decision to release an original bill of lading to the applicant without receipt of an acceptable waiver, the issuing bank has contravened these sub-articles.
Accordingly, the protection that it receives from UCP is no longer available and, in accordance with UCP 600 sub-article 16 (f), the issuing bank is precluded from claiming that the documents do not constitute a complying a presentation.
As a consequence, the issuing bank must honour.
Any issues concerning fraud or court orders are outside the scope of UCP and are a matter for local law.