Clause a: Refusal to Honour or Negotiate
Clause: 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.
Explanation: If any bank involved in the letter of credit transaction (nominated, confirming, or issuing) finds that the documents presented do not meet the terms and conditions of the credit, they have the right to refuse payment or negotiation.
Example: A seller presents documents to the confirming bank, but the documents indicate that the goods were shipped on a later date than specified in the letter of credit. The confirming bank, upon noticing this discrepancy, can refuse to pay the seller.
Clause b: Waiver of Discrepancies
Clause: When an issuing bank determines that a presentation does not comply, it may in its sole judgment approach the applicant for a waiver of the discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b).
Explanation: The issuing bank, upon finding discrepancies, may ask the applicant (the buyer) if they are willing to accept the discrepancies and waive them. However, this process must be completed within the timeframe specified in Article 14(b).
Example: A letter of credit requires a certificate of origin from the chamber of commerce. The seller submits a certificate issued by beneficiary. The issuing bank contacts the buyer to see if they will accept this discrepancy. The buyer agrees, and the issuing bank proceeds with the acceptance or payment. However, if issuing bank wants they may not approach applicant for waiver.
Clause c: Notice of Refusal
Clause: When a nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter. The notice must state: i. that the bank is refusing to honour or negotiate; and ii. each discrepancy in respect of which the bank refuses to honour or negotiate; and iii. a) that the bank is holding the documents pending further instructions from the presenter; or b) that the issuing bank is holding the documents until it receives a waiver from the applicant and agrees to accept it, or receives further instructions from the presenter prior to agreeing to accept a waiver; or c) that the bank is returning the documents; or d) that the bank is acting in accordance with instructions previously received from the presenter.
Explanation: If a bank decides to refuse the documents, it must inform the presenter (usually the bank from where documents received) in one comprehensive notice. This notice must detail the refusal, list all discrepancies, and state what the bank will do with the documents. Incase issuing bank forgets something to mention in the refusal notice and then sends a second message to presenter stating that this is the additional information related to the refusal notice sent earlier. In this case second message will be disregarded.
Example: A seller presents documents to the nominated bank, but they do not comply with the letter of credit terms. The nominated bank sends a single notice to the seller stating that they are refusing the documents because the insurance policy is missing, and informs the seller that they are holding the documents pending further instructions.
Clause d: Notice Timeline
Clause: The notice required in sub-article 16 (c) must be given by telecommunication or, if that is not possible, by other expeditious means no later than the close of the fifth banking day following the day of presentation.
Explanation: The bank must send the notice of refusal promptly, no later than five banking days after the documents are presented. This notice must be communicated quickly, preferably through electronic means.
Example: A seller submits documents to the issuing bank on Monday. By the next Monday, the issuing bank must send a notice of refusal if they find discrepancies.
Clause e: Return of Documents
Clause: A nominated bank acting on its nomination, a confirming bank, if any, or the issuing bank may, after providing notice required by sub-article 16 (c) (iii) (a) or (b), return the documents to the presenter at any time.
Explanation: After informing the presenter of the discrepancies and what they intend to do with the documents (holding or seeking a waiver), the bank may return the documents to the presenter at any time.
Example: After sending a notice of refusal and informing the seller that the documents are being held pending further instructions, the issuing bank decides to return the documents to the seller after two days. Issuing bank can do this.
Clause f: Consequences of Failure to Act
Clause: If an issuing bank or a confirming bank fails to act in accordance with the provisions of this article, it shall be precluded from claiming that the documents do not constitute a complying presentation.
Explanation: If the issuing or confirming bank does not follow the proper procedure for refusing documents as outlined in Article 16, they lose the right to assert that the documents are non-compliant.
Example: The issuing bank fails to notify the seller of discrepancies within five banking days. As a result, the issuing bank cannot later claim that the documents are non-compliant and must honour the presentation.
Clause g: Refund and Interest
Clause: When an issuing bank refuses to honour or a confirming bank refuses to honour or negotiate and has given notice to that effect in accordance with this article, it shall then be entitled to claim a refund, with interest, of any reimbursement made.
Explanation: If the issuing or confirming bank properly refuses the documents and has already reimbursed the nominated bank, they are entitled to get their money back along with any interest accrued.
Example: The issuing bank refuses the documents due to discrepancies and notifies the presenting bank properly. If the issuing bank had reimbursed the confirming bank before getting the documents, it can now claim that amount back with interest.