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Industry estimates suggest that 60–75% of initial document presentations under letters of credit are rejected by banks due to discrepancies with the L/C terms. For a seller who has already shipped goods and expects payment, a bank’s refusal is a serious problem. The roots of this problem lie in one fundamental principle: strict compliance with documentary requirements.
In our overview article on letters of credit we covered the general mechanics of L/Cs—how they are opened, who participates, and what types exist. Here we focus on one specific question: why banks reject documents and what you can do about it.
How Banks Examine L/C Documents
The essence of a letter of credit boils down to a simple principle: the bank pays the seller if the documents look flawless on paper. The actual shipment, the quality of the goods, the performance of the underlying contract—none of this concerns the bank. Its sole task is to compare the documents against the text of the L/C.
The standard for this examination is set out in Art. 14(a) of UCP 600: the bank assesses documents solely on their face. A missing document, an error in the text, a deviation from the L/C wording—any of these defects will lead to refusal of payment.
Five Banking Days for Review
Under the current rules (UCP 600, Art. 14(b)), the bank has exactly five banking days to review incoming documents. For comparison: the previous UCP 500 edition allowed seven days, while the even earlier UCP 400 did not fix any specific period at all, which gave rise to abuses.
Missing this deadline costs the bank dearly: if notice of discrepancies is not sent within five days, the bank forfeits the right to cite the defects, and the presentation is automatically deemed accepted (UCP 600, Art. 16(f)). In practice, this is one of the seller’s most powerful protections—it prevents the bank from holding documents indefinitely without responding.
What the Bank Actually Examines
The bank compares each incoming document against the L/C text. An important nuance: UCP 600 (Art. 14(d)) does not require word-for-word identity—data in the documents may be worded differently. However, no contradictions are permitted between the documents and the L/C, or between the documents themselves.
Drawing this line between ‘different wording’ and ‘contradiction’ is not easy in practice, and this is where most disputes arise. An example of a direct contradiction: the L/C requires ‘minimum 70% protein,’ but the analysis certificate shows 67%. Now consider a different situation: the beneficiary’s address in the invoice is recorded differently from the L/C. UCP 600 takes a pragmatic approach here: if both addresses point to the same country, the discrepancy is not treated as a defect (Art. 14(j)).
The Strict Compliance Doctrine
In the world of documentary credits, strict compliance is an absolute rule. If the documents diverge from the L/C text in any respect, the bank must reject them—regardless of whether the discrepancy makes any commercial difference.
The Ampersand That Cost Payment: Bulgrains v Shinhan Bank
In Bulgrains & Co Ltd v Shinhan Bank [2013] EWHC 2498 (QB), the bank rejected documents because the beneficiary’s name included an ampersand (“&”) that did not appear in the L/C text. This seemed a purely formal detail with no bearing on party identification or the transaction’s substance.
The court upheld the rejection and made a fundamental clarification: the doctrine of de minimis (insignificance rule) is inapplicable to documentary credits. However minor the error may seem, a divergence between the document text and the L/C wording obliges the bank to refuse payment—the bank has no discretion here.
The Classic Example: Soproma v Marine & Animal By-Products (1966)
Another frequently cited case is Soproma SpA v Marine & Animal By-Products Corporation [1966] 1 Lloyd’s Rep 367. The dispute involved supply of Chilean fish meal on C&F terms. Document discrepancies included incorrect wording in the phytosanitary certificate and a bill of lading marked “freight payable at destination” instead of the required “freight prepaid.” The court (McNair J.) found the documentary presentation non-complying.
But What if the Discrepancy Is Truly Trivial?
English courts recognize an extremely narrow exception for wholly trivial defects. In Bankers Trust Co v State Bank of India [1991] 2 Lloyd’s Rep 443, among multiple alleged discrepancies was an incorrect buyer’s telex number—”931310″ instead of “981310” (a single-digit typo). The Court of Appeal noted that such a typographical error, obviously not affecting party identification, might not constitute a basis for rejection. However, the court immediately qualified this: it was an extraordinarily narrow concession, applicable only to defects that, on any reasonable reading, could not possibly mislead anyone.
Relying on this exception when preparing documents is a risky strategy. A bank that discovers a discrepancy will not deliberate whether it is “trivial”—it will simply refuse.
What to Do When the Bank Finds Discrepancies
Upon discovering non-compliance, the bank sends the seller a single notice of refusal (single notice of refusal). The content of this document is strictly prescribed: it must expressly state the refusal to pay, provide a full list of discovered defects, and describe how the bank intends to deal with the documents—whether it will hold them, return them to the presenter, or dispose of them under a previously agreed arrangement (UCP 600, Art. 16(c)).
The key time constraint: the notice must be sent by telecommunications by the close of the fifth banking day counted from the date the bank received the documents (UCP 600, Art. 16(d)).
Once you receive this notice, you have several options.
Option 1: Correct and Resubmit
If the discrepancy can be corrected (for example, a typo in the invoice or a missing certificate), you can obtain corrected documents and present them again to the bank—provided the L/C validity has not expired.
Option 2: Request a Waiver from the Buyer
The issuing bank may, at its discretion, contact the buyer (applicant) requesting a waiver—agreement to accept documents despite the discrepancies (UCP 600, Art. 16(b)). The buyer decides whether to accept documents “as is.”
Here lies a practical trap: the buyer is not obligated to agree. If the market price for the goods has fallen since contract signature, the buyer gains incentive to reject the documents, using the formal discrepancy as a pretext for exiting an unfavorable deal.
Option 3: Payment Under Indemnity
Your bank may make payment under your indemnity obligation. If the buyer later refuses the documents, your bank will demand reimbursement. This option suits situations where you are confident the buyer will accept the documents and you need fast payment.
Preventing Discrepancies
Most bank rejections can be prevented before goods are shipped. The critical step is verifying the L/C against the contract immediately upon receipt.
Before Shipment
Upon receiving the L/C, you must immediately compare its terms to your contract. If wording diverges—demand an amendment. Silence after receiving an L/C may be construed as acceptance of its terms.
Separately, arrange in advance with your carrier, insurer, and surveyor for the precise document wording they will issue. If the L/C requires a certificate with specific language—confirm the lab or inspection company will provide that exact wording.
When Preparing Documents
Many banks offer pre-checking services—preliminary review of documents before formal presentation. This service costs money but allows you to identify discrepancies early and correct them before the five-day examination clock starts.
Submit documents at least several days before the L/C expires—to leave time for corrections if discrepancies are found.
Special Caution in Rising Markets
When market price has risen significantly since contract conclusion, the buyer is in a losing position and less inclined to forgive document errors. A discrepancy that would normally be waived in typical circumstances may become grounds for rejection in a rising market.
Frequently Asked Questions
Can the bank unilaterally decide a discrepancy is immaterial?
No. The bank cannot assess the commercial importance of a discrepancy. If documents do not comply with L/C terms on their face—the bank must refuse. An exception for wholly trivial defects (typographical errors not affecting identification) exists, but it is so narrow that you cannot rely on it.
What happens if the bank misses the five-day notification deadline?
If the bank fails to send notice of rejection within five banking days, it loses the right to rely on the non-compliance (UCP 600, Art. 16(f)). The documents are deemed accepted, and the bank must pay.
Can the buyer instruct the bank not to pay?
As a general rule, no. The L/C is autonomous from the underlying contract, and the buyer cannot influence the bank’s decision on document compliance. The sole exception is proven fraud by the seller (forged documents).
How many times can documents be resubmitted?
As many times as the L/C validity allows. Each new presentation triggers a fresh five-day examination period. However, note the 21-calendar-day limit after shipment date for transportation documents (UCP 600, Art. 14(c)).
Conclusion
Document discrepancies are among the most frequent problems in international trade. The strict compliance doctrine leaves no room for arguing “the discrepancy is insignificant”: if documents do not match the L/C terms—the bank will refuse. Your best defense is careful verification of the L/C against your contract immediately after receipt, pre-arrangement of document wording with carriers and inspectors before shipment, and use of the bank’s pre-checking service before formal presentation.
If you have questions about letters of credit or need help resolving a discrepancy dispute, please get in touch:
