The Notarial Protest and the Dishonoured Letter of Credit
A UK exporter, Harrow Metals Ltd, sold machinery to a buyer in a jurisdiction where a documentary letter of credit was confirmed by a local bank. The credit required presentation of a bill of lading, an invoice and a certificate of inspection. The documents were presented, but the confirming bank refused payment, alleging the inspection certificate was signed by an entity not named in the credit. Harrow's trade finance manager asks a notary to prepare a notarial protest and to certify the documents. The notary is asked to (a) protest the dishonour, (b) certify copies of the documents as true copies, and (c) prepare a notarial certificate of presentation. The notary has the original documents, the credit, and correspondence from the bank. The notary is also asked to backdate the protest to the date of dishonour, which was 12 days earlier.
1. Explain what a notarial protest is, when it is appropriate, and how the notary should proceed.
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A protest is a formal notarial act recording the dishonour of a negotiable instrument or, in trade finance practice, the dishonour or non-acceptance of a documentary presentation. It is not a substitute for legal advice on the credit's terms, but it creates an independent, contemporaneous record that may be used in arbitration, litigation or negotiation.
When appropriate. A protest is appropriate where a bank has refused to honour a credit or has refused to accept documents, and the exporter needs evidence of the refusal. It is also used for bills of exchange and promissory notes. The notary should check the credit's governing rules (for example UCP 600) and any dispute resolution clause.
Procedure. The notary should:
- Identify the parties and the instrument or presentation.
- Record the date, time and place of presentation and of the refusal.
- Record the bank's stated reasons for refusal, quoting the correspondence.
- Note the documents presented and their condition.
- Give notice of dishonour to the parties as required by the applicable law or the credit.
- Prepare a notarial act of protest, signed and sealed, with a copy to the exporter and, if appropriate, to the bank.
Backdating. The notary must not backdate the protest. A notarial act must be dated when performed. Backdating would be a false statement and could amount to a criminal offence (for example, fraud or perjury) and would destroy the evidential value of the act. If the notary is asked to record events that occurred 12 days earlier, the notary may prepare a certificate of facts observed or a declaration recording the history, clearly dated on the day it is made, and may state that the protest is made late. The notary should explain the risk and refuse to backdate.
2. Advise on the certification of copies and the certificate of presentation, including the notary's duties and any money laundering considerations.
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Certification of copies. The notary may certify that copies are true copies of the originals produced to him. The certificate should identify the document, the number of pages, the date of examination and the fact that the copy was compared with the original. The notary should not certify a copy he has not seen or a document he cannot verify. If the documents are in a foreign language, the notary should state whether he understands the language or whether a translation was used.
Certificate of presentation. The notary may record that the documents were presented to him, the date and time, and their condition. He should not certify that the bank's refusal was wrongful; that is a legal conclusion. He should record the facts and the bank's stated reasons, leaving the legal analysis to the parties.
Duties. The notary must act independently, verify the identity of the person instructing him, explain the nature and effect of the act, and keep proper records. He should not act where there is a conflict of interest, for example if he also acts for the bank.
Money laundering. The notary is a regulated person for anti-money laundering purposes. He must:
- identify the client and, where relevant, the beneficial owner;
- verify identity using reliable, independent sources;
- obtain information on the purpose and intended nature of the transaction;
- conduct ongoing monitoring;
- keep records for the required period (five years after the relationship ends);
- report suspicious activity to the National Crime Agency if he knows or suspects money laundering.
The transaction is trade finance, so the notary should check the parties, the jurisdictions and the source of funds. If the bank's refusal is linked to sanctions or fraud concerns, the notary should consider whether to proceed and should take legal advice. He should not disclose a suspicious activity report to the client (tipping off).