As you are certainly aware, some banks add a number of clauses, not required by their customers, to the LC's they issue on their behalf.

The question is the following:

In case the presentation bears discrepancy(ies) relating to the added clauses, is the bank entitled to accept such discrepancies on its sole judgment, without referring to the applicant?

In case the reply is positive, would this acceptance be binding to the applicant?

In other terms, can the applicant refuse this acceptance (and refuse to pay the bank)arguing that the presentation was discrepant to initial LC terms and that the bank should have asked for his acceptance before raising the documents?

I would appreciate your feed back on this issue.

Thanks and regards.

Dear Azmi,

Thanks for using the single window.

First of all one would hope that there is an agreement between the applicant and the issuing bank as to the actual content of the LC.

In any case - the LC is the issuing bank's instrument; and as such the applicant is not a part of the LC. If you read through UCP 600 article 16 - you will see this reflected clearly.

For example:

quote

a. When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank determines that a presentation does not comply, it may refuse to honour or negotiate.

b. When an issuing bank determines that a presentation does not comply, it may in its sole judgement approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b).

Unquote

If you look at sub-article b above - then you will note that the issuing bank may contact the applicant - but it does not have to - and it is the decision of that bank to accept or refuse if the presentation is not complying.

In that respect it does not change anything who (applicant or issuing bank) added the clause that are the basis for the refusal.

In the worst case - applicant may sue the issuing bank if they feel that the LC does not reflect the application they have made, and that have made them suffer a loss. Such case would however be outside the LC - and the outcome would depend on the actual circumstances.

I hope this helps you.

Best regards

Kim Christensen