A bank’s refusal is valid only if it complies with article 16 of UCP 600: a single notice, within five banking days following presentation, listing each discrepancy and stating what is being done with the documents. Otherwise the bank is precluded and must pay. If the refusal is in order, the seller corrects and re-presents within the validity period, obtains a waiver, or sues the buyer on the sale contract.
The seller shipped forty containers of malt to Lagos. He presented his documents to his Nantes bank, which forwarded them to the Nigerian issuing bank. Eight days later an MT734 message lands: “documents refused”, five discrepancies, among them a bill of lading presented “on board” without a separate shipment date and an invoice reading “malted barley” where the credit said “malt”. Payment of 1.4 million dollars is blocked, the ship arrives in ten days, and the buyer, informed by his bank, already offers to “waive the discrepancies” against an 8% price reduction. This page says what the seller must do, in order and within the deadlines, and what he must not accept.
Forty-eight hours for one thing: check the refusal itself
The temptation, when the message arrives, is to rush to the discrepancies to see whether they are founded. That is the second question. The first is whether the refusal is valid, because an irregular refusal obliges the bank to pay, discrepancies founded or not. The ICC Uniform Customs and Practice, to which every credit issued by SWIFT refers, impose a strict discipline on the bank: when it decides to refuse to honour or negotiate, it must give a single notice to that effect to the presenter, stating that it is refusing, each discrepancy in respect of which it refuses, and what it is doing with the documents (UCP 600, art. 16(c)). That notice must be given no later than the close of the fifth banking day following the day of presentation (UCP 600, art. 16(d), and art. 14(b)). A bank that fails to act in accordance with those provisions is precluded from claiming that the documents do not constitute a complying presentation (UCP 600, art. 16(f)).
Five checks follow, to be made on the papers within forty-eight hours. The date of presentation, proved by the receipt or the transmission message of the seller’s bank, and the count of banking days at the place of the examining bank: a refusal notified on the sixth day is void. The singleness of the notice: a bank that first notified three discrepancies and adds two in a second message cannot rely on the last two. The reasons: each discrepancy must be identified, and a general formula such as “documents not in order” is worth nothing. The disposal of the documents: the notice must say whether the bank is holding them at the presenter’s disposal, holding them pending a waiver, returning them, or acting on prior instructions; silence on that point makes the refusal irregular. And the author of the refusal: only the examining bank, issuing or confirming, may refuse; a mere advice from the advising bank is not a refusal within article 16. In the Lagos file, the message arrived on the eighth calendar day, the sixth banking day in Lagos, because of a local public holiday the Nigerian bank had counted as a banking day. The refusal was late; the bank paid. That outcome is nothing exceptional: refusals are drafted in a hurry, by departments that handle dozens of presentations a day, with holiday calendars that vary from one place to another and standard messages some of which omit the disposal of the documents, so that an appreciable share of the refusals received by French exporters would not survive a careful reading of article 16, a reading almost nobody makes because everyone rushes to the discrepancies. Read the refusal. Then, and only then, the discrepancies.
Our detailed analysis of documentary credits, bank discrepancies and non-conforming documents explains how the examination works; this page concentrates on what to do.
If the refusal is in order: are the discrepancies founded?
A refusal may be regular in form and unfounded in substance. The bank examines the documents to determine, on their face alone, whether they appear to constitute a complying presentation (UCP 600, art. 14(a)). But compliance does not mean identity: data in a document, read in context with the credit, the document itself and international standard banking practice, need not be identical to, but must not conflict with, data in that document, any other stipulated document or the credit (UCP 600, art. 14(d)). The description of the goods in the commercial invoice must correspond with that in the credit, while in other documents it may be in general terms not conflicting with the credit (UCP 600, art. 18(c), and 14(e)). And a condition in the credit that does not state the document to indicate compliance is deemed not stated (UCP 600, art. 14(h)).
On those bases, part of the discrepancies collapse by themselves. “Malted barley” for “malt” is not a conflict; it is a precision. A bill of lading bearing a pre-printed “shipped on board” wording and a date of issue is deemed dated as of shipment, unless the document indicates another vessel or port of loading, as the ICC International Standard Banking Practice (ISBP 745) spells out document by document. The seller must therefore write to the bank, discrepancy by discrepancy, to dispute those that are not discrepancies, citing the UCP article or the ISBP paragraph that says so. That dispute has no formal deadline, but it must precede the expiry of the credit, because until then the seller keeps the possibility of re-presenting.
If the discrepancies are founded: correct, re-present, obtain a waiver
There remains the case where a discrepancy is real: an unlegalised certificate of origin when the credit required legalisation, an insurance policy for 100% of the value when 110% was required, a transport document dated after the latest shipment date. Three routes, in that order of preference.
Correct and re-present. The credit remains available until its expiry date and, when it calls for a transport document, presentation must be made within twenty-one calendar days after the date of shipment, or within the shorter period the credit stipulates (UCP 600, art. 14(c)). A second presentation of corrected documents within those periods erases the refusal. That is why one should never present on the last day, and why some documents, such as the legalised certificate, must be ordered before shipment. A transport document cannot be corrected: a late shipment date is cured only by an amendment of the credit.
Obtain a waiver. The issuing bank may in its sole judgement approach the applicant for a waiver of the discrepancies (UCP 600, art. 16(b)); it is not obliged to, and the five-day period is not extended by it. The seller may also ask the buyer directly to instruct his bank accordingly, or to have the credit amended. This is where the most dangerous negotiation takes place. A buyer in good faith waives formal discrepancies without consideration, because he wants the goods. A buyer who demands 8% off to waive a discrepancy in the spelling of the goods is using the bank as an instrument of renegotiation, and a seller who accepts has lost the security he paid for through the credit commission. The answer is to refuse the discount, to dispute the unfounded discrepancies with the bank, to correct those that are founded, and to remind the buyer that the sale contract, for its part, obliges him to pay the price.
Collect outside the credit. When the credit expires without a complying presentation, the documents may be handed to the bank “for collection” or “under reserve”: the bank no longer guarantees anything and merely transmits. That route is sometimes unavoidable, but the seller must understand that he is giving up the bank’s undertaking and becoming an unsecured creditor of a foreign buyer, in the situation described on our page on the foreign customer who does not pay. It is accepted only after the first two have been exhausted.
Confirming bank, advising bank: whom to claim against
Whom to sue depends on the undertaking each bank gave. The issuing bank is irrevocably bound to honour as from the time it issues the credit (UCP 600, art. 7). The confirming bank adds its own irrevocable undertaking as from the time it adds its confirmation (UCP 600, art. 8); it is against that bank, French or European, that the beneficiary sues first, before a nearby court, without concern for country risk or the risk of the Nigerian bank. The Cour de cassation recalled the scope of that undertaking in holding that a confirming bank which sets off against the beneficiary a claim it holds against him is performing its payment obligation and not raising a non-documentary condition (Cass. com., 15 March 2023, no. 20-23.552). The merely advising bank is bound to nothing: it advises the credit and forwards the documents, and a seller who believed he held a confirmation when the SWIFT message carried only an advice has recourse only against the issuing bank, in Lagos.
That difference is checked when the credit is advised, in the “confirmation instructions” field of the MT700 message, not when the refusal comes. A seller exporting to risk countries who did not ask for confirmation has saved a few dozen basis points which cost him, on the day of refusal, the whole of his protection.
What fraud and sanctions change
Two grounds of blockage escape the documentary mechanism. Fraud, which the UCP do not address but which French law has always sanctioned: the court may prohibit payment where fraud by the beneficiary is manifest and established by immediately available evidence, for instance a bill of lading issued for a shipment that never took place. The bar is high, and a buyer who obtains an interim blockage on the mere allegation of non-conforming goods exposes himself to damages. International sanctions, next: a bank refuses or freezes a transaction in which a party, a vessel, a port or a commodity falls under a sanctions regime, and most credits today contain a sanctions clause whose wording must be read before shipment. A refusal based on a sanctions clause is not contested on the ground of article 16; it is contested on the reality of the sanctions risk, as our analyses of sanctions against Russia and of the extraterritorial reach of US sanctions explain.
Acting: against the bank, against the buyer, or both
Where the bank is precluded or the discrepancies are unfounded, the action is brought against it, for payment of the credit, before the court of its seat or the one the credit designates, with an interim payment order available in France where the obligation is not seriously disputable. Where the credit is lost through the seller’s own fault, the action remains open against the buyer on the sale contract, which obliges him to pay the price regardless of the credit (CISG, art. 53), before the court designated by the contract or, for an EU buyer, the court of the place of delivery (Regulation (EU) No 1215/2012, art. 7(1)). The documentary credit is only a method of payment; its failure does not release the buyer.
The goods, finally, must not be forgotten in the battle of documents. As long as the seller holds the full set of bills of lading, he keeps control of the cargo, and the buyer cannot collect it in Lagos. That is the last lever, and often the most effective: a buyer who sees the ship arrive and knows he will not be able to take delivery waives discrepancies faster than his bank would. A seller who handed a bill of lading to the buyer before payment, or shipped under a straight bill to the buyer’s order, lost that lever at the very moment he would have needed it.
You have received a refusal or discrepancy message on a documentary credit? The regularity of the refusal is checked within forty-eight hours and decides everything. The firm reviews the credit, the presentation and the notice, and drafts the challenge to be sent to the bank.
Frequently asked questions
The bank refused on the sixth day: can it still refuse [[Q]]
No. The notice of refusal must be given no later than the close of the fifth banking day following the day of presentation (UCP 600, art. 14(b) and 16(d)). A bank that fails to act in accordance with article 16 is precluded from claiming that the documents are not complying (art. 16(f)) and must honour.
The refusal message does not say what the bank is doing with the documents: is it valid [[Q]]
No. The notice must state that the bank is refusing, each discrepancy and the disposal of the documents (UCP 600, art. 16(c)). Omitting any of those makes the refusal irregular and the bank precluded.
Is a difference of wording between the invoice and the credit a discrepancy [[Q]]
Not necessarily. Data need not be identical but must not conflict (UCP 600, art. 14(d)). The description in the invoice must correspond with that in the credit (art. 18(c)); in other documents, a general description that does not conflict is enough.
The buyer asks for a discount to waive the discrepancies: should I accept [[Q]]
No, not on formal discrepancies. Dispute the unfounded ones with the bank, correct and re-present those that are founded within the validity period, and remind the buyer that the sale contract obliges him to pay the price whatever becomes of the credit (CISG, art. 53).
Which bank should I sue [[Q]]
The confirming bank, which gave its own irrevocable undertaking (UCP 600, art. 8), where there is one; otherwise the issuing bank (art. 7). The advising bank is bound to nothing.
What if the credit has expired without a complying presentation [[Q]]
Hand the documents over for collection under reserve, knowing that the bank no longer guarantees payment, keep control of the bills of lading until the price is paid, and start recovery against the buyer on the sale contract.
Written by Hervé Guyader, avocat at the Paris Bar, doctor of law. This content is general information and does not replace legal advice.