Documentary Discrepancies Handling Rules

Handling of discrepancies is governed by a hierarchy: UCP 600 > ISBP 821 > eUCP v2.1 > UCC Article 5. ISBP does not amend UCP, it explains banking practice.

A discrepancy means presented documents do not comply with:

• Credit terms
• Applicable UCP 600 provisions
• International Standard Banking Practice reflected in ISBP 821

Golden Rule: Banks deal in documents, not goods. Strict compliance, not substantial compliance.

I. Core Principles

1. Principle of Strict Compliance - Doctrine of Independence
Beneficiary must strictly comply. Issuing bank need not decide whether non-compliance is substantial in context of underlying sale. US law:

"a bank is entitled to require strict compliance with a letter of credit, rather than more relaxed requirement of substantial compliance" - Bank of Seoul v. Norwest Bank Minnesota, 218 AD2d 542 citing Voest-Alpine Intl. Corp. v. Chase Manhattan Bank, 707 F.2d 680 and United Commodities-Greece v. Fidelity Intl. Bank, 64 NY2d 449

Slightly relaxed under UCP 600 Art 14(d) - data in documents need not be identical, but must not conflict. Art 14(j) - address and contact details need not be exactly same.

2. Functional Compliance - ISBP 821 Paragraph A39
Under UCP 600 sub-article 14(f), document is acceptable if it appears to fulfil its function, even if title different. ISBP 821 A39 says document titles not determinative where required function fulfilled. Example: Credit asks for "Packing List" - document titled "Packing Details" with quantities = compliant.

3. Linkage vs Conflict - UCP 600 Art 14(d)
Documents which appear inconsistent with one another are discrepant. But contextual linkage allowed. Description of goods in invoice must correspond to credit, other documents may be in general terms not conflicting.

II. Handling Rules - Step by Step for Banks

Rule 1: Examination Period - 5 Banking Days

• UCP 600 Art 14(b): Maximum 5 banking days following day of presentation to determine compliance.
• Banking day = day bank open for regular business. Saturday excluded unless bank open.
• TT Limited v MI Textiles Pte Ltd (2014) - processing did not involve trade finance to exclude Saturday - court examined what is banking day.

Rule 2: Single Notice - Single Examination - Art 16(c)

When refusing, bank must give single notice stating:
i. Refusal to honour/negotiate
ii. Each discrepancy
iii. Disposition: holding at disposal, returning, or seeking applicant waiver.

• Bulgrains & Co Ltd v Shinhan Bank EWHC 2498 - notice must be complete and specific, each discrepancy stated. General "various discrepancies" insufficient.
• If you list 2 discrepancies, you cannot later add 3rd - preclusion.

Rule 3: Preclusion Rule - Art 16(f)

If bank fails to act per 16(c)(d), it is precluded from claiming non-complying presentation. Must pay even if discrepant, even if fraud - Seaconsar Far East Ltd v Bank Markazi 1 Lloyd's Rep 36.

• Fortis Bank v Indian Overseas Bank EWCA Civ 58 - notice must state all discrepancies and disposition, else preclusion.

Rule 4: Disposition Options - Art 16(c)(iii)

Four options, must be stated:
a) Holding documents at disposal of presenter pending further instructions
b) Holding until receives waiver from applicant and agrees to accept it, or receives further instructions
c) Returning documents
d) Acting per instructions previously received from presenter

Most banks use option (b) - Approach applicant for waiver. But cannot release documents to applicant without presenter consent if discrepant.

Rule 5: Waiver Handling

• If applicant waives discrepancies, issuing bank may still refuse? Under UCP 600 Art 16(b) - issuing bank may in its sole judgement approach applicant for waiver, but not obliged to. If it decides to refuse despite waiver, must still give Art 16 notice.
• Confirming bank not bound by applicant waiver - can still refuse.
• Once waiver accepted, bank must honour.

Rule 6: Cure and Re-presentation

Beneficiary can cure discrepancies and re-present within original expiry and latest presentation period. Original refusal notice remains, but new presentation is new examination. Doctrine of Cure linked to Single Notice rule.

III. ISBP 821 - Practical Handling to Avoid False Discrepancies

ISBP 821 (2023 revision, 200 paragraphs) prevents banks from raising trivial discrepancies:

A. General:

• A1-A40: Spelling, typing errors that don't affect meaning not discrepant.
• A23: Quantity, weight, measurement - if credit says "about" - 10% tolerance.
• A35: Documents dated after presentation allowed if not required to be dated before.

B. Invoice:

• M1: Invoice must be issued by beneficiary unless credit allows third-party.
• M4: Description must correspond, not mirror - minor extra detail okay if not conflicting.

C. Transport Docs:

• E5(c): Bill of Lading agent must be named and signing on behalf of carrier - TA.923 - if not, discrepancy.
• E7: On board date, port, etc.

D. Insurance, Certificate:

• If credit does not specify content/format of health certificate, additional identification not discrepant - TA.848rev.

IV. Landmark Case Laws on Handling

US - Strict Compliance

1. Voest-Alpine International Corp. v. Chase Manhattan Bank, 707 F.2d 680 (2d Cir 1983) - Locus Classicus

Held UCP does not mandate mirror image strict compliance, but standard is strict - documents must bear rational link to transaction and not mislead bank. Later cited in 3Com Corp v Banco do Brasil 171 F.3d 739: Beneficiary must strictly comply so bank need not judge substantial compliance.

2. United Commodities-Greece v. Fidelity Intl. Bank, 64 NY2d 449 (1985) - New York Court of Appeals

Reaffirmed strict compliance, not substantial.

3. Bank of Seoul v. Norwest Bank Minnesota

Bank entitled to disregard discrepancies argument from applicant (Sanshoe). Must examine independently.

4. Alaska Textile Co. v. Lloyd Williams Fashions, 88 Civ 7103

Literal compliance essential - documents nearly same not good enough.

UK

5. Bulgrains & Co Ltd v Shinhan Bank EWHC - 2013

As discussed - each discrepancy must be stated, complete and specific. Failure = preclusion.

6. Fortis Bank SA/NV v Indian Overseas Bank EWCA Civ 58 - 2011

UCP 500 Art 14(d)(e) predecessor to UCP 600 Art 16. Notice must state all discrepancies and disposition.

India

7. United Commercial Bank v Bank of India (1981) 2 SCC 766 - Supreme Court

Bank's only obligation is to look into correctness and appropriateness of documents. Courts give primacy to UCP norms over underlying agreement.

Applied in Allahabad Bank v Malayan Banking Ltd (2019): Article 16(d) obligates intimation of discrepancy. Failure = preclusion.

8. Tarapore & Co v V/O Tractors Export - SC; Madura Coats Ltd v Bank of India - Delhi High Court

Any discrepancy can lead to rejection - strict compliance adopted in India.

9. State Bank of India v Shyam Garments (2011)

Telex sent to wrong presenter code - discrepancy communication invalid. Must communicate to correct presenter.

V. Operational Handling Flow - For Banks

For Nominated / Presenting Bank:

1. Receive from beneficiary, check within reasonable time, forward with covering schedule stating "documents presented in compliance" if you think compliant. TA.934: That statement can cure late presentation technicality under Art 29(b).

For Issuing / Confirming Bank:

1. Day 0: Receive - start 5-day clock next banking day
2. Examine against: Credit + Amendments + UCP 600 + ISBP 821 (not applicant's email)
3. If compliant: Honour / Negotiate, forward docs to applicant
4. If discrepant: Send MT734 within 5 days listing EACH discrepancy + disposition. Do not release docs to applicant without waiver + presenter consent.
5. If waiver received: Decide to accept (optional) - if accept, honour despite discrepancy.
6. If no waiver: Hold per notice, await instructions, return if requested.

Common Handling Mistakes Leading to Preclusion:

• Raising discrepancy not in LC (e.g., requiring certificate not called)
• Ignoring ISBP 821 tolerance - raising typo as discrepancy
• Sending second refusal notice adding new discrepancy
• Not stating disposition - merely saying "discrepant"

VI. eUCP v2.1 Update

For electronic presentations, Art e8-e11: Format, data corruption, notice of incompleteness must be given within 5 banking days. Same preclusion applies if bank fails to communicate incomplete presentation.