Dear sir,

Could you please advise me regarding the following:

My bank negotiated complying documents under L/C subject to UCP 600 and sent the documents to the issuing bank for sight payment.

Later the Issuing Bank instruct us as follows:

" .....Please be advised that we received documents on the 23/10/2008. As you already know according to UCP600 we have 5 business days to examine documents, therefore the final day to honour reimbursement, therefore, we should pay you on the 30/10/2008 value date 03/11/2009....."

We expect the payment should be received by us within 30/10/2008, but they pay us with the value date 03/11/2009.

Can we claim the delay payment interest from the Issuing Bank?

The 5 banking days (not business days) as reflected in UCP 600 sub-article 14(b) describes

the period of time a bank (nominated bank acting on its nomination, issuing bank and/or confirming) has to determine if a presentation is complying.

In terms of when the issuing bank must honour the above should be read in conjunction with UCP 600 sub-article 15(a) which reads:

"When an issuing bank determines that a presentation is complying, it must honour"

The purpose of this sub-article is to say that the issuing bank must start to honour "when" it is determined that the presentation is complying. Or rather the "process of honour" must begin at that time.

This does therefore not mean that payment must be made on that day – but may in fact take some time - e.g. depending on local currency regulations. I note that there are two banking days between the 5th banking day and the value date (assuming that Saturday and Sunday is not banking days for the issuing bank). In the country where I come from the same practice would apply.

So basically if you are to claim interest from the issuing bank it should be based on your "proof" when they did in fact determine that the presentation was complying (which may have been 23/10 !) AND that the process of honour has taken too long time. Such proof would be hard indeed to carry through, so my evaluation would be that you have a difficult case.

The above being said - it should be stressed that the 5 banking day rule is not regarding when payment should be made - and it is bad banking practice to have a practice where complying documents are mechanically honoured after 5 days - regardless when they are examined and determined complying.

Best regards

Kim

In my point of view the issuing bank must honour even before determining the compliance of documents, as article 7 a UCP 600 stipulates

provided that the stipulated documents are presented to the nominated or to the issuing bank......., the issuing bank must honour.

The issuing bank when receiving documents determines that the presentation is not complying has the right to ask for re-fund of the proceeds under good value date plus the interests, but I don't think that the issuing bank can  pay only after determining conformity of the presentation.

Regards,

Radhouane.  

Dear Radhouane,

Thanks for the comment. Really appreciated!

I agree with that - but I took it (perhaps wrongly) that the structure of the LC was so that the issuing bank would transfer after receiving the documents.

Thanks in advance

Kim