Refusal, waiver, and the discrepancy you cannot cure

The notice, and the one thing it can get wrong in your favour

Bahari Bank sent the documents to Muscat on 5 July. They arrived on 8 July. On 13 July a message came back by SWIFT. Batinah Commercial Bank refuses to pay, on four discrepancies, and is holding the documents at the presenter's disposal pending instructions.

Before doing anything else, Yusra Rifaat read the refusal notice the way Batinah had read her invoice.

A refusal has a shape. Under UCP 600 the issuing bank must give a single notice, without delay and within the time the rules allow for examination. That notice must state each discrepancy it is refusing on, and what the bank is doing with the documents. It may be holding them pending instructions, holding them at the presenter's disposal, returning them, or acting on a waiver it has already received.

The penalty for getting that wrong is the strongest sentence in the whole rulebook from a beneficiary's point of view. A bank that does not follow those requirements is barred from claiming that the documents do not comply. It must pay.

So this check is not academic. Suppose a notice lists three discrepancies and a second message two days later adds a fourth. Or it names discrepancies but says nothing about the documents. Or it drifts past the time allowed. In each case the refusal may be worthless and the bank may owe you the money. The check takes ten minutes, and it is the only structural leverage a beneficiary ever gets.

Batinah's notice was correct in every respect. There was no leverage here. Check anyway, every time, because the one occasion there is leverage will look exactly like this one until you read it.

A refusal is not a rejection of the goods

This is worth saying plainly, because the word "refusal" does so much damage in a factory. Batinah has not said the coveralls are wrong. Batinah has not said Brackenbury do not want them. Batinah has said the paper does not entitle Qaitbay to be paid under the credit. That is all it has said.

The goods are sitting in three forty-foot containers at Sohar. Brackenbury want them badly. The bills of lading are made out to the order of the issuing bank, so nobody can collect the goods until Batinah releases the documents. Batinah will do that when it is paid, or when it is told to. Everybody in the chain wants the same outcome. What has changed is who is negotiating from behind.

Four routes, and one of them is already closed

Cure and present again. The right answer whenever it is available. It needs both clocks still open: the expiry, and the presentation period. Here the expiry was 20 July and would have allowed it. The presentation period ran out on 28 June. Route closed. That is the point of lesson 3's split between curable and incurable. Two of the four discrepancies were free to fix, and there was nowhere to take them.

Ask for a waiver. The issuing bank may, if it chooses, ask the applicant to waive the discrepancies. It is free to ask, and there is no deadline on the answer. That is exactly the problem. Your money now sits inside a decision nobody has to make by any particular date, and the person making it knows that.

Send the documents on a collection basis. The bank forwards them for payment against acceptance, or against payment, outside the credit. That runs under the collections rules rather than the credit rules. You keep control of the goods through the bill of lading and you lose the bank's promise entirely. Course 13.1 covers collections properly. The point here is that this route turns an instrument you paid for into one you did not.

Have the documents returned. You then own goods in a foreign port, with demurrage running and no buyer obliged to take them. Demurrage is what the terminal charges you for leaving a container there past its free days. It is a real option, and it is almost never the right one for garments made to one buyer's specification.

Qaitbay asked for the waiver on 14 July.

What the discount was actually priced against

Brackenbury waived on 21 July, and asked for 3.5% off the invoice.

The instinctive reading is that 3.5% is the price of four typing errors. It is not, and getting this right changes how you treat every future refusal.

Brackenbury's own contract with the oilfield contractor has a delivery date of 31 July, ahead of a shutdown, with a late-delivery deduction of USD 1,200.00 a day capped at USD 24,000.00. Their containers landed at Sohar on 9 July with seven days of free time. From 16 July the terminal charged USD 45.00 a container a day, and three containers sat there until 22 July. That is USD 810.00 Brackenbury paid out of their own pocket while waiting for a decision that was theirs to make.

So on 21 July Brackenbury were looking at up to USD 24,000.00 of their own exposure, running demurrage, and a supplier who had handed them a reason to ask for something. The 3.5% is priced against Brackenbury's problem, not against Qaitbay's paperwork.

The general rule is the useful part. A discrepancy costs you whatever the applicant's own delay costs them. The identical four discrepancies on an order landing eight weeks before the buyer needed it would have been waived within a day, and for nothing, because there would have been nothing on the applicant's side of the table to turn into a discount. This is why two factories can present equally sloppy documents and one of them never notices.

The bill

Payment value date 28 July. A clean presentation on 28 June would have been paid on or about 5 July, so the money arrived 23 days late.

Every rate above is a charge quoted to Qaitbay by a named party. Bahari Bank's overdraft rate on this account is 9.5% a year, and the discrepancy fee is the one written into field 47A of this credit. None of them is a market figure you should expect to meet on your own order.

Across 14,400 coveralls that is USD 0.578 a piece, or 4.21% of the CFR price. Qaitbay's gross margin on the order was 11.0% of CFR, which is USD 21,780.00. So the refused presentation took 38.2% of the margin on a shipment that was made correctly, inspected, shipped on time, delivered, accepted and sold.

Act as a trade finance manager advising an exporter whose presentation has just been refused. Be blunt about what can be recovered and what cannot. Facts: credit amount [AMOUNT], goods already shipped on [DATE], vessel arrived or arriving [DATE], credit expiry [DATE] at [PLACE], presentation period [DAYS] days after shipment date, date I presented [DATE], credit confirmed or unconfirmed [STATE WHICH]. Here is the refusal notice in full: [PASTE IT]. Here are the documents as presented: [LIST THEM AND WHAT EACH SAYS ON THE POINTS RAISED]. My cost of money is [PERCENT] a year, my gross margin on this order is [AMOUNT OR PERCENT], the discrepancy fee under the credit is [AMOUNT], and my buyer's own delivery commitment to their customer is [DATE AND ANY PENALTY THEY FACE, IF I KNOW IT]. Do the following. First, check the refusal notice itself against the requirements for a valid refusal: one notice, each discrepancy stated, what the bank is doing with the documents stated, and sent within the time allowed. Tell me whether the bank may have barred itself, in which case I should take it to my own bank today. Second, take each discrepancy in turn and classify it as curable now, curable but too late, or incurable, and give the reason. Third, for each curable one, state exactly what has to be done, by whom, and in how many days. Fourth, set out my four routes, which are cure and present again, seek a waiver, send on a collection basis, and have the documents returned. Price each one in money and days on my figures. Fifth, estimate what pressure my buyer is under from their own delivery date, because that, and not the number of discrepancies, is what will set the discount they ask for. Sixth, tell me what to change inside my own building so this kind of failure cannot happen again, and separate the free fixes from the ones that need somebody else's agreement.

The counterfactual, done honestly

Lesson 2 ended on the amendment nobody asked for: extending field 48 from 15 days to 21. It would have cost USD 60.00 and would almost certainly have been granted. It is tempting to close the story by saying it would have saved USD 8,328.29. It would not have, and the arithmetic says so.

A 21-day period makes the last presentation day 4 July. The documents were complete on 2 July and were presented on 4 July, so discrepancy one disappears. Discrepancies two, three and four do not. The name on the invoice was curable in an hour, but nobody knew about it until the bank named it on 13 July. The freight marking needed the shipping line to re-issue a bill, which is USD 250.00 and three working days, and that does not fit inside 2 to 4 July either. And the beneficiary's certificate could not be cured at any price at any time.

So the amendment would have turned a presentation with four discrepancies into a presentation with three. Wagih Botros, Qaitbay's finance director, put it in one line at the review: Brackenbury were not counting discrepancies. They were counting days to their shutdown.