If (1) there is a dispute about the supply of goods for which payment is to be made under an L/C a specified number of days after the documents have been accepted by the issuing bank and released to the purchaser, and if (2) the purchaser of the goods has grounds for believing that following payment by the bank under the L/C to the supplier there will be no assets left in the jurisdiction out of which payment could be made to the purchaser if the court upholds the purchaser's claim against the supplier, (3) can the purchaser successfully petition the court to grant a freezing order <!--break-->which (A) prevents the bank from making payment on the due date specified in the L/C until the dispute is decided and (B) would allow the court subsequently to order, if the dispute is decided in the favor of the purchaser, that the amount to be remitted under the L/C by the bank should be reduced by the amount of any award to the purchaser?If this is not possible, how is the purchaser protected against the risk that the goods when received are found not to be as stated in the documents provided to the bank in accordance with the L/C? What is the purchaser's protection against fraudulent documents? Does the UCP deal with this?
freezing order
The above case is very important concern for the importer. Pls find following comments as per my understanding(pls correct me if I am wrong)
1.As per UCP 600 art 34 - A bank assumes no responsiblity for fraudulent documents. A bank at the time of verifying the docs follows UCP 600, ISBP which clearly protects banks from fraudulent docs.Banks check on face value whether the documents are credit compliant or not.
2.As per art 4 of UCP600 underlying contract is a separate transaction. So your freezing purchase order after the LC is opened by issuing bank does not alter the irrevocable status of the LC. So for the banks as long as it is a complying presentation they have to reimburse.
This scenario is lopsided in favour of exporter if the LC is available by negotiation or by payment. Even more favourable if the exporter has confirmed the LC and negotiated the docs which is found to be complying presentation by confirming bank.From Lc point of view if the exporter has taken all possible measures in the LC beforehand there is little your can do can do to stop the payment.
On the other side the importer can protect his interest by having the LC by acceptance whereby their bank has the time to accept the draft and during such time they can access the cargo as per contract.
Otherwise have the preinspection done to your satisfaction before loading of cargo and have the same incorporated in the Lc documents required.
But practically these issues are settled without involving the banks(banks reputation at stake!)The issuing bank here is in a precarious situation if the importer insists on finding a discrepany and stopping the payment. Practically issuing banks expects the payment be made by importer ultimately, so will try to protect his interest based on the relationship.
Normally these disputes are settled amicably.LC just a payment instrument remember.....
Many thanks for this very competent reply
Just the part on L/C against acceptance is slightly misleading.
Under such a credit the issuing bank didn't even have a chance to fight off the payment under the old UCP 500 as the bank has entered into an own bill of exchange obligation and has no contractual ties to the underlying transaction.
So, I honestly see no chance to first look and then decide whether paying or not under an acceptance L/C.
-Each long journey starts with a small step-
Best regards
Frammi