Expired LCs
'E's not
pinin'! 'E's passed on! This parrot is no more! He has ceased to be! 'E's
expired and gone to meet 'is maker!
The above
quote is taken from the "The Dead Parrot Sketch" by Monty Python.
I bet, that
you ask yourself why I talk of dead parrots on lcviews.com. Well - it is surely
not because I am stuck with an LC covering "5000 pcs of dead parrots for
retired sailors". No - the reason is that I want to raise the issue of
"documents presented under an LC that has expired".
I have seen
examples where "credit expired" is dealt with like any other
discrepancy. In far the most cases - there is no difference from a practical
point of view: The documents are either refused or accepted/paid by the issuing
bank as any other set of documents. There is however a significant difference;
which takes us back to the above quote from Monty Python:
When an LC
is expired - it has ceased to exist - there is no LC.
This means:
1) That,
the general rules for refusing documents (i.e. UCP 600 article 14(b) and 16) do
not apply. The major consequence of this is that the rule stating that the
documents must be refused within "a maximum of five banking days following
the day of presentation" does not apply. The presentation does not obligate
the confirming/issuing bank and payment will therefore be received if and when
it is received. “Refusing” later than 5 banking days does not mean that the
bank is precluded from claiming that the documents do not constitute a
complying presentation.
2) That,
since the confirming bank is not obligated, and article 8 does not apply, a
confirming bank cannot make any promises to the beneficiary that they in other
situations might. For example it would not be wise to say, "we have noted
the mentioned discrepancies, and have forwarded the documents to the issuing
bank, and will remit payment when received however latest dd.mm.yyyy."
"Latest" reflecting the period of time after which the documents must
be refused to be within the period set out by article 14(b).
[Of course
such text should always be considered with great care.]
Therefore
when receiving documents under an LC that has expired, the following should be observed:
- The
confirming must ensure that the beneficiary is aware; that the consequence of
the LC is expired is that the issuing bank is in no way obligated – regardless
if they refuse the presentation. Therefore the handling of the documents is not
covered by the UCP 600 as it would be had the presentation been made within LC
validity. For example there is no requirement that the issuing bank informs
about the disposal of the documents. It should therefore be carefully decided
how to proceed.
- That the
acknowledging letter from the confirming bank to the beneficiary does in no way
place any obligation on the confirming bank, e.g. to pay within a certain
period of time or at maturity - regardless of the role in the LC (nominated-,
confirming bank etc.).
If this
sounds too boring I advise you to re-visit Monty Python at the Pet Shop and
Take care
of each other and the LC.
Best regards
Kim