Credit Dispute Letterletter of credit dispute
If the deviations are found to be ineffective, the negotiator shall be fully authorised on hard copy to request a refund from the issuer in accordance with the Uniform Customs and Practice for Letters of Credit for Documents, International Chamber of Commerce (ICC) Publications 500 (UCP 500). But since the primary objective of such a refusal may be to reduce prices, the attempt to argue with the issuer institution for merely technological reasons may be in futile use since it is a transaction rather than a document matter.
Accordingly, recipients often have an important involvement in the resolution of conflicts. Most of the beneficiary banks continue to discuss an agreement (i.e. a discount ) with the claimant, even in the case of a non-recourse letter of credit transaction, as it would not be in their best interest to suffer significant credit losses in the corresponding letter of credit transaction.
Recipients are also best placed to give the negotiation banking institutions up-to-date information on the context and evolution of the case and the supplies concerned. This information can be critical in assisting a negotiation banking institution to develop an efficient credit dispute resolution policy. In general, a well-advised professional will advise that a negotiation bench of the issuer bench should take a tough and quick stance if the stated disparities are void or unfair, as the conventional stance of just typing to the issuer bench and asking for payments and threats of litigation is unlikely to work.
It may be more efficient for the negotiation bench to draft a letter of claim in detail that: summarises the key facts of the case; disproves any allegations of discrepancy and supports the disproval with ICC expert opinion, ICC Documentary Instruments Dispute Resolution Expertise (DOCDEX) judgments and prior judicial decision; identify the issuer's possible violations of the UCP 500, if any.
A reminder letter of this kind provides details of the reasons for the letter of credit and enables the issuer to persuade the claimant to settle the dispute immediately. A letter can be even more efficient if a solicitor who has direct communication with the issuer banks makes a follow-up call to the issuer in the name of the negotiation banks.
Calling has shown itself to be very useful in determining the issuer bank's stance and location, allowing the negotiator institution to schedule its next move. If, however, the negotiation supervisor fails to identify applicable variances or finds that there are very contentious variances, it may consider a smoother one. An established policy is for the Council of the negotiating banks to write a letter to the issuer emphasising the negotiation bank's view of the disparities in order to convince the issuer that the case may not be as severe as initially thought.
It may induce the issuer institution to modify its policy and request the claimant to resolve the dispute, as the issuer institution no longer regards this as a safe bet. Often, the opinion of a senior attorney or business practice in the area of commercial financing helps to persuade the issuer institution to reach a settlement, rather than to conduct an open dispute.
Claimants sometimes seek an injunction to prevent the issuer from making unproven claims for cheating. Usually this happens when the claimant knows that the inconsistencies detected by the issuer are not justified but wants to postpone disbursement in order to discuss a significant decrease in prices.
Therefore, it is prudent for the issuer to take the lead in making the order (if allowed by applicable laws). In addition, the merchant may inform the competent tribunal that it has brokered the document and is resistant to trade dispute or cheating between purchaser and vendor.
As a general rule, if a merchant bargaining institution bargains the submitted documentation in good faith, at value and without announcement of cheating or objection between the claimant and the payee, it is immunity from cheating or disputing commercially initiated by the claimant. Therefore, the issuer is required to repay the negotiator according to the UCP 500.
As an alternative, the issuer may persuade the claimant to revoke the request for deferment of payments from the LB T on the grounds that, if the issuer takes the issuer to court within the issuer bank's jurisdiction, the issuer continues to be obligated to make payments because the order of the LB T has no effect in the issuer bank's jurisdiction.
This is probably the best way to resolve the dispute and obtain a refund from the issuer with regard to costs and timing as well. In the event that the letter of credit dispute cannot be resolved within a suitable period of grace, the negotiation banks may consider presenting the case for resolution in accordance with the DOCDEX rules.
Following submission of an application, the ICC appoints three thirdparty impartial assessors to consider the parties' comments and decide on the dispute under the UCP 500. While a DOCDEX ruling is enforceable only if both sides so determine, it is unlikely that the issuer will initiate court action if the ruling is directed against it.
The DOCDEX has proven to be a costeffective and time-efficient means of solving letter of credit litigation. If a letter of credit dispute occurs, the negotiation banks should consider: engaging the lawyer, who should have extensive experience in arranging global commercial financing, to discuss the applicability of the disagreements found by the issuer banks and to devise an appropriate dispute resolution policy; verifying that the ship has reached the point of landing and, if not, determining when it will do so.
It will increase the burden on the issuer as it will have to pay the costs of berthing, warehousing and insuring if it is considered unreasonable to refuse the documentation submitted to it; to check with the recipient the relationship (if any) between the end-user and the importer's representative - if the requester is only an importer's representative, it may be more efficient to deal directly with the end-user; to justify to the recipient the requester's intent to refuse the documentation (i.e. whether the requester is aiming at a decrease in prices or whether the item is intended to be sold); to verify with the requester the relationship (if any) between the end-user and the importer's representative; and to justify to the recipient the requester's intent to refuse the documentation (i.e. whether the requester is aiming at a decrease in prices or whether the item is intended to be sold).
In case of suspicion of cheating, the investigating institution should examine whether such accusations are justified, as they influence the issuer's stance in dealing with the dispute; seek guidance as to whether a tough or gentle stance should be taken; ask an attorney with face-to-face contact with the issuer to call them to determine the issuer's location and reasons for rejection and to resolve any misunderstandings between the notifying institution and the issuer; issue a well-documented reminder letter.
A good wording is indispensable as the letter is checked not only by the commercial financing divisions, the commercial and corporate divisions of the issuer and top managers, but also by the sponsor. Furthermore, if a deferral of payments has been ordered by the regional court, the institution may obtain the assistance of a lawyer in order to most effectively complete the order.