A Turkish steel manufacturer (Okan Metalurgy) manufactures hor rolled coils by casting and rolling the slabs imported from various countries.

The company imports slabs from Howard Steel Mills (Ukraine), and approached Turkish Bank, for opening of letter of credit for USD 600,000, on sight basis, in favour of Howard Steel Mills.

Turkish Bank issued its irrevocable negotiable credit. The Ukrainian Bank advised the credit to Howard Steel Mills, on receipt of the swift transmission.

After export of the consignment, Howard Steel Mills presented the documents under the credit to The Ukrainian Bank.

The Ukrainian Bank, examined the documents presented by Howard Steel Mills and determined that they were in compliance with the terms and conditions of the credit. The Ukrainian Bank negotiated and honored the documents and forwarded the documents to the Turkish Bank.

Turkish Bank checked the documents and honoured the reimbursement claim by Ukrainian Bank.

Okan Metalurgy received the documents, BUT before customs clearance, identified that the goods are not as per proforma invoice.

Okan Metalurgy requested the fund withdrawn from its account by Turkish Bank on the basis of the fact that the goods are not in line with the order specifications.

Turkish Support Bank responded by stating that they acted in accordance with UCP rules and there were no discrepancy on the shipping documents and all the documentation was in accordance with the credit terms and conditions.

Questions

1. What is the problem?

2. What is meant by irrevocable? What is meant by negotiable?

3. What sight means at this transaction?

4. Was Turkish Bank, correct in its argument, as the credit issuing bank? 5. What are the lessons learnt?