A Study on Preclusion Rule in Letter of Credit Operations

According to UCP600, an issuing bank has a maximum of five banking days following the banking day of presentation to determine whether the presentation is complying. If the issuing bank, decides to refuse to honour, it must give the presenter a single notice stating that it is refusing to honour, and identify all the discrepancies, by expeditious means. UCP600 faces a challenge because UCC Article 5 tells that a reasonable time for examination can expire before the deadline. An issuing bank that fails to give timely and complete notice to presenter of refusal to honour is strictly precluded from claiming that the presentation had been non-complying. Therefore a Korean issuing bank especially dealing with a beneficiary in USA shall be cautious in refusal notice procedure especially in case ISP98 is adapted as a governing rule or USA is employed as a jurisdiction.