Durham Auto Turkey is a public limited company; they manufacture utility vehicle, in collaboration with General Motors of USA. The company has established their manufacturing base at Manisa, Turkey.

The company imports many parts of the car engine in a CKD (completely knocked down) condition from General Motors, and approached Turkish Support Bank, Manisa Branch for opening of import letter of credit as per UCP ICC 600 for USD 100,000, on sight basis, in favour of General Motors.

Turkish Support Bank, Manisa Branch issued its irrevocable negotiable credit through its head office in Istanbul since Turkish Support Bank co-ordinated all its accounting and communication functions at its head office. The Bank’s head office transmitted the credit through Swift network as instructed by its Manisa branch to General Motors, Detroit, through The American Bank.

The American Bank advised the credit to General Motors, Detroit on receipt of the swift transmission.

Along with other conditions, the credit clearly stated that the negotiating bank was to forward the documents directly to Turkish Support Bank head office (HO) at Istanbul.

After export of the consignment, General Motors, Detroit presented the documents under the credit to The American Bank.

The American Bank, examined the documents presented by General Motors and determined that they were in compliance with the terms and conditions of the credit. The American bank negotiated the documents and forwarded the documents, as per the credit terms, to the HO of Turkish Support Bank in Istanbul and claimed reimbursement from International Bank.

International Bank (reimbursing bank) honoured the reimbursement claim by crediting the current account of the American Bank and debiting the account of Turkish Support Bank in Istanbul in its books.

Turkish Support Bank’s Head Office, at Istanbul, received the documents and after internal registration of the documents, forwarded the documents to its Manisa Branch by inter-office mail.

On receipt of the documents by the Manisa branch of Turkish Support Bank, they examined the documents and determined that they were discrepant. They were 60 units were shipped instead of 50 units, and Inspection certificate by Auto Inspection Council, USA is not submitted, as per credit terms. Turkish Support Bank contacted Durham Auto Turkey for waiver of the discrepancies.

Durham Auto Turkey requested for copies of the documents to be forwarded by fax and after reviewing the same, they refused to waive the discrepancies.

Turkish Support Bank Manisa Branch instructed its HO to transmit an authenticated swift to The American Bank stating that Turkish Support Bank had rejected the documents for the noted discrepancies, requesting the American Bank’s instructions as to disposal of the documents, and demanding a refund of the funds reimbursed.

The HO of the Turkish Support Bank sent the authenticated swift message to the American Bank as instructed by its Manisa Branch.

On receipt of the swift notification advising that Turkish Support Bank had rejected the documents for the stated discrepancies, the American Bank informed Turkish Support Bank that it did not accept the rejection of the drawing since the Turkish Support Bank did not comply with UCP 600 sub-article 14 for standard examination of documents. Therefore, Turkish Support Bank was said to be stopped from dishonouring its irrevocable obligation.

Turkish Support Bank, Manisa Branch responded by stating that they acted in accordance with UCP article 14, since their action did not exceed five banking days following the day of receipt of the documents at their branch counters after which they scrutinised the documents and determined to refuse them. They maintained that as per article 14 of UCP 600, they notified about the rejection of the documents, by swift, not later than the close of the fifth banking day following the day of receipt of the documents. They had pointed out all the discrepancies and had informed American Bank, New York that they were holding the documents at the latter’s disposal.

The American Bank replied as follows: We disagree with your position that you acted in accordance with UCP 600 article 14. Documents were delivered by courier to your HO as per the terms of the credit, on Monday, January 7, 2019. Your swift notifying rejection of the documents was not sent until Wednesday, Jan 16, 2019 that is, on the eighth banking day after receipt of the documents by your bank.

Turkish Support Bank, Manisa Branch, responded by stating that even though its HO received the documents on January 7, 2019; the Turkish Support Bank’s Manisa Branch did not receive the documents until the following Thursday, January 10, 2019, and the swift advice rejecting the documents was sent within the time period permitted in UCP article 14.

The American Bank, replied that it was not their concern how Turkish Support Bank’s operational policy impacted on their inability to comply with UCP. The American Bank stated that in accordance with the credit terms and conditions, documents were negotiated by them and forwarded to Turkish Support Bank’s HO by courier. The documents were received by Turkish Support Bank on Jan 7, 2019, and any notice of rejection of the documents should have been given within the close of the fifth banking day following receipt of the documents. Turkish Support Bank’s Manisa Branch failed to do so. Therefore, the American Bank would not refund the funds reimbursed.

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 Support Bank, Manisa Branch correct in its argument, as the credit issuing bank?

5. Was the stand taken by The American Bank, New York correct, as the negotiating bank?

6. What are the lessons learnt?