Letter of Credit Disputes in Bangladesh: Buyer and Seller Remedies
A letter of credit is supposed to take the risk out of paying a supplier you have never met. It usually does, right up until the bank spots a discrepancy in the documents and declines to pay. When that happens, the money can be held up over a comma, and both buyer and seller need to understand why.
What is a letter of credit dispute?
A letter of credit dispute arises when a bank refuses to pay under a documentary credit, usually because the presented documents are said not to comply with the credit’s terms, or where fraud is alleged. Because the credit is independent of the sale contract, these disputes turn on documents, not the goods.
Two principles that decide most LC disputes
Documentary credits, commonly governed by the ICC’s Uniform Customs and Practice (UCP 600), run on two ideas:
- Autonomy. The credit is independent of the sale contract. The bank deals in documents, not in whether the goods were good.
- Strict compliance. The documents presented must match the credit’s requirements closely. Even minor mismatches can be treated as discrepancies.
Together these explain why a seller who shipped perfect goods can still be refused payment, and why a buyer unhappy with the goods usually cannot stop the bank paying.
Why banks reject presentations
Most refusals are over discrepancies: a description that does not match the credit, late shipment or presentation, an inconsistent invoice, or a missing document or endorsement. Many are curable if caught in time, which is why a fast, precise response matters.
The fraud exception
The one situation where a court may step in and restrain payment is clear, established fraud. The bar is deliberately high, and the timing is tight, so anyone considering it needs advice immediately rather than after payment has been made.
Buyer and seller remedies
A seller refused for discrepancies can often re-present corrected documents, seek the buyer’s waiver of the discrepancy, or pursue the buyer under the sale contract. A buyer facing goods that do not match the contract generally looks to the sale contract and any inspection remedies rather than to the credit, unless fraud is in play.
Where this firm fits
Letter of credit and cross-border payment disputes are part of the firm’s international trade practice, alongside customs and import disputes and getting the Incoterms right at the contract stage. If a bank has refused your presentation, or you are a buyer worried about a payment, an early look at the credit and the documents shows what is really at stake, speak with the advocate.
This article is general information, not legal advice. For your specific matter, speak with the advocate.
Frequently asked questions
What is a letter of credit dispute?
A letter of credit dispute arises when a bank refuses to pay under a documentary credit, usually because the presented documents are said not to comply with the credit's terms, or where fraud is alleged. Because the credit is independent of the sale contract, these disputes turn on documents, not the goods.
What is a document discrepancy under a letter of credit?
A discrepancy is any way in which the documents presented do not exactly match what the credit requires, such as a wrong description, a late shipment, an inconsistent invoice, or a missing endorsement. Under the strict-compliance principle, even small discrepancies can justify a bank refusing payment.
Can a buyer stop payment under a letter of credit?
Only rarely. Because a credit is independent of the underlying contract, a buyer generally cannot block payment merely because of a dispute over the goods. The main exception is clear, established fraud, where a court may grant an injunction. This is a high bar and needs prompt legal action.