Volta Foods: discrepant documents under a frozen shrimp letter of credit

The discrepancies

• Late shipment: shipped on board 18 November against a latest shipment date of 15 November.
• Insurance: EUR 5,040,000 is 105% of the EUR 4.8m CIF value, not the required 110%.
• Consignee: to order of issuing bank instead of to order of Volta Foods BV.
• Certificate of origin: no HS code, so it does not evidence the data required by the credit.

Timing is compliant

• Presentation on 24 November is within the 21-day presentation period and before the 30 November expiry, so the presentation is timely even though shipment is late.

The decision framework

• Under UCP 600 the issuing bank has a maximum of five banking days following the day of presentation to examine and give a single notice of refusal. From 24 November that means the decision window closes around 1 December, allowing for the weekend.
• Any refusal must state each discrepancy, and state whether documents are held at the presenter's disposal or are being returned. A partial or vague refusal, or silence, precludes the bank from later claiming the documents are non-compliant.
• Paying the same day is not required and would be poor practice: the bank would honour documents it has not finished examining and could lose its reimbursement claim against Volta if Volta later disputes the discrepancies.
• Perishability does not override the documentary examination. It is a separate operational risk to be managed, for example by ensuring the documents are held so that the goods can be cleared, and by arranging customs and storage instructions with the applicant.

Recommendation

• Issue a refusal within the five-banking-day window listing all four discrepancies, holding documents at the presenter's disposal, and simultaneously seek Volta's written waiver. Payment only after the bank has decided to accept and has secured reimbursement.

Option 1: refuse and hold documents

• Cleanest legal position, preserves recourse to the presenting bank and to Volta. Risk is commercial: the goods may be delayed or stranded, damaging a valued client and creating reputational noise.

Option 2: accept on Volta's written waiver

The bank may accept discrepant documents, but it should only do so with an explicit written waiver from the applicant covering each discrepancy by name. The risk is that if the bank pays without the applicant's consent, or on a waiver narrower than the actual discrepancies, Volta can resist reimbursement and the bank is left unsecured against frozen goods. Obtain the waiver by email from an authorised signatory and confirm the drawdown against the trade facility, including margin.

Option 3: accept against cash cover or reduced facility availability

• Ask Volta to place the full EUR 4.8m on deposit or to accept a reduction in availability until the goods are sold and proceeds received. This converts a documentary risk into a secured exposure and is often the right answer where the client is valued but the discrepancy is material, such as the late shipment.

Option 4: take control of the goods

• The consignee discrepancy is awkward but useful: the bill of lading runs to the order of the issuing bank, so the bank can control delivery. The bank can endorse it to the applicant only against payment or a trust receipt, and should ensure the insurance is assigned or noted. This improves recovery if Volta fails.

Option 5: treat as an amendment or new presentation

• The documents cannot be corrected retrospectively for late shipment. An amendment cannot cure a shipment already made outside the credit terms, so do not pretend it can.

Decision logic

• Weigh the discrepancy severity: late shipment and under-insurance are substantive; missing HS code is curable in practice but still a discrepancy. Price the accommodation through margin, fees and security rather than waiving for free. Escalate to trade finance operations before payment is released.

Validate the waiver

• Check that it names every discrepancy, is signed by an authorised person under the facility mandate, and is unconditional. A general statement that the client accepts the documents is weaker than an itemised waiver.
• Confirm reimbursement: the EUR 6m trade facility is undrawn, so the EUR 4.8m drawing fits, but confirm there is no other hold, no matured obligation and no KYC refresh outstanding. If the account is otherwise clean, take the drawing and debit on the value date.

Decide within the five banking days

• The applicant's waiver does not transfer the obligation to decide onto the applicant. The bank must still issue its own acceptance or refusal within the five-banking-day window. Send the presenting bank a clear acceptance message, not a refusal, once the decision is made.
• Record the rationale in the file: discrepancies noted, waiver received, credit approved, and any additional security taken.

Protect the bank's position

• Because the bank is accepting non-compliant documents, it loses the ability to refuse against the presenter. Preserve recourse by taking a trust receipt or pledge over the documents and goods, assigning the insurance proceeds, and requiring the applicant to pay within a defined period regardless of on-sale.
• Watch the consignee wording. If the bill is to the order of the issuing bank, the bank controls delivery; release only against payment or an acceptable trust receipt. If the applicant needs the original bill to clear customs before payment, that is precisely when the bank needs cash cover or another security.

Managing the goods

• The vessel arrives 12 December. Confirm who will clear customs, who bears demurrage and storage, and that the insurance covers the period. A documentary waiver is worthless if the cargo is stuck at port at the bank's risk.
• Send the client a short note confirming the accommodation is without precedent, that future presentations must be compliant, and that repeated discrepancies will lead to document examination fees or refusal. Feed the discrepancy history into the client's annual review and pricing.