WHEN IS THE TIME FOR THE ISSUING BANK TO RELEASE THE BILL OF LADING TO THE APPLICANT?

18 Comments

1. 

   anonymous

   May 28, 2010 at 7:05 pm

   Mich writes:Dear Mr Old Man,May I ask a few questions. 1) Why do issuing banks allow TT reimbursement? because I know china banks do not. 2) Where TT reimbursement allowed and a reimbursing bank is nominated in LC, I understand its not common for the nominated bank to be informed upon LC issuance, am I right? In any case, how would the negotiating bank get reimbursed upon sending a swift to issuing bank on complying docs? As a nominated reimbursing bank, can I refuse payment when I received a corresponding swift from negotiating bank?3) In what circumstances do issuing banks nominate banks other than itself as reimbursing banks?4) How is the process flow for claiming TT reimbursement like?5) What is the difference between authenticated swift and tested telex? Banks use it in tandem.Hope it's not too much for you. Appreciate your response.

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2. 

   anonymous

   May 29, 2010 at 7:05 am

   TT China writes:I have worked in China for a long timeThey do accept TT (Bank of China), but the difference is, they will not notify you directly that they have received a TT in your name (or automatically deposit the funds into your bank account). You have to go to the bank and ask the bank teller to check. This can take many days of trying and depends whether or not the bank teller is really interested in really checking for you or not.Willy Cooper

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3. 

   mroldmanvcb

   May 29, 2010 at 9:05 am

   Dear Mich,Too much to answer at weekend. But I’ll try.1) It is true that not many banks are willing to issue LC with TT reimbursement allowed as the issuing bank must reimburse earlier than it does under LC without TT reimbursement clause. However, sometimes the issuing bank must accept such an uncomfortable clause, especially when the LC is a confirmed LC. I see from my experience that a wise confirming bank would always insist on T.T reimbursement clause as a prerequisitte for it to add confirmation to the LC. The reason may be that the confirming bank must negotiate (purchase at a discount) without recourse if the documents are complying, hence, it expects to receive reimbursement from the issuing bank the sooner the better to avoid loss due to delayed reimbursement.2) No. It is a common practice that when nominating a bank as a reimbursing bank under LC, the issuing bank would send the nominated reimbursing bank a reimbursement authorization stating (i) LC number; (ii) LC amount; (iii) claiming bank or, in the case of LC available with any bank, that claims can be made by any bank; (iv) parties responisble for charges (claiming bank’s and reimbursing bank’s charges). For further information about Bank to Bank Reimbursement Arrangment, please refer to UCP 600 Article 13 or URR 725.If the LC allows T.T reimbursement and if the documents presented to the negotiating bank are complying, the negotiating bank just send the issuing bank an authentiated swift message stating the documents are complying and the issuing bank will pay in accordance with its undertaking.With regard to the question if the nominated bank can refuse payment, please refer to URR 725 – Article 11 quoted as below:QuoteProcessing a Reimbursement Claima. i. A reimbursing bank shall have a maximum of three banking days following the day of receipt of the reimbursement claim to process the claim. A reimbursement claim received outside banking hours will be deemed to be received on the next following banking day. If a pre-debit notification is required by the issuing bank, this pre-debit notification period shall be in addition to the processing period mentioned above. ii. If the reimbursing bank determines not to reimburse, either because of a non-conforming claim under a reimbursement undertaking or for any reason whatsoever under a reimbursement authorization, it shall give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, no later than the close of the third banking day following the day of receipt of the claim (plus any additional period mentioned in sub-article (i) above). Such notice shall be sent to the claiming bank and the issuing bank and, in the case of a reimbursement undertaking, it must state the reasons for non-payment of the claimUnquote3) I see that issuing banks that have their branches in abroad, e.g., in New York, would normally nominate such branches as reimbursing banks. This could be their own payment arrangement.Also I see that sometimes a confirming bank only accepts to add confirmation to the LC if the issuing bank nominates a US reimbursing bank which must issue its reimbursement undertaking to the claiming bank (i.e., the confirming bank).Banks that have no branches in New York would often nominate their correspondent banks where they maintain account as reimbursing bank.4) See my answer no. 2.5) Where banks maintain SWIFT BKE (Swift Bilateral Key Exchange), an authenticated swift message is used. Where banks have test key arrangement and communicate by telex, a tested telex is used. Banks that have SWIFT BKE would agree to stop using tested telexes.Have a good weekend, friend.Best regards,Mr. Old Man ——Dear Mr. Willy Cooper,Thanks for your input. Enjoy your weekend.Best regards,Mr. Old Man

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4. 

   anonymous

   May 29, 2010 at 3:05 pm

   Mich writes:Thank you for your swift response, Mr Old Man. Its informative and very helpful. Just wish to clarify a few points. Refer to:2) I say this because I experienced times where negotiating banks send swift messages to reimbursing banks for TT claim on comply docs, but the reply was they received no authorization from issuing banks to act as reimbursing banks. The negotiating bank then has to request issuing banks to inform the reimbursing banks, which has resulted in delayed payment. Secondly, refer to the URR 725 Article 11, where a pre-debit notification in required. Is this where LC indicates in the reimbursing instructions to the similar effect "negotiating bank must inform us by authenticated swift… within 2 banking days before maturity, otherwise payment effected 3 banking days later." ? If this is correct, then the 2 banking days would be added on to the 3 banking days (as stated in URR 725)? Another question I'd like to bring out is: Back-to-Back transactions. Where we purchase on DES Ship-to-Ship and sells on DES STS, who should cover the insurance? Because risk on seller's is from loading port to vessel at destination port, whereas buyer's is after vessel a destination port. Have a good weekend too!

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5. 

   abrar2

   May 30, 2010 at 2:05 am

   Focusing on the notice period, I feel that Article 11 can be interpreted in two directions:In the case of a notice period being required, the article appears to suggest that 2 conditions are required; 1. A notice is to be given to the issuing bank, and 2. The reimbursing bank must be allowed 3 days from the date of receipt, to process (and presumably to pay) the claim. There is no indication in the article that the notice period must simulataneously be given to the reimbursing bankIf for example, the issuing bank requires 2 days notice, and if for example, the claiming bank submits a notice to the issuing bank that it has made a claim on the reimbursing bank, value 3 days, I feel that both conditions can be complied with.Alternatively, if the issing bank requires say, 5 days notice, a 5 day notice to the issuing bank and a reimbursement claim value 5 days would also comply.To suggest otherwise, i.e in the first case, being required to submit a claim value 2 days, but receiving payment between the 2nd and 5th day, and in the second case, being required to submit a claim value 5 days, and receiving payment between the 5th and 8th day, seems to be an unreasonable interpretation.

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6. 

   mroldmanvcb

   May 30, 2010 at 11:05 pm

   Dear Mich,DES means that the seller delivers when the goods are placed at the disposal of the buyer on board the ship not cleared for import at the named port of destination. The seller has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging. Under DES the seller is not obligated to buy insurance for the goods but he has to bear all risks of loss of or damage to the goods until such time as they have been delivered as above described, i.e., placed at the disposal of the buyer on board the ship not clear for import at the named port of destination. The buyer must bear all risks of loss of or damage to the goods from the time they have been delivered. To cover the risks involved in bringing the goods to the named port of destination, the seller may at his own discretion and expense insure the goods from the warehouse to the named port of destination. In the back to back transaction where DES is used, who should cover the insurance – the seller (supplier) or the middle man (trader)? I think it is not the middle man but the seller that should arrange insurance cover for the goods if he feels needed.Dear Abar,Thanks for your answer to the first question of Mich. I totally agree with your opinion. I would appreciate if you further elaborate on the insurance issue raised by Mich.Regards,Mr. Old Man

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7. 

   abrar2

   June 1, 2010 at 9:06 pm

   Hi MichNot sure that I have much more to add to Mr Old Man's comments. However, it may be easier to negotiate terms with your supplier to arrange insurance from the seller's warehouse on DES (port of destination specified under your contract with your buyer)basis. Insurance is not mandatory but bearing of the risk is certain; i.e you would bear risk to deliver on DES basis to your buyer's nominated port of destination.

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8. 

   anonymous

   August 31, 2010 at 11:08 am

   JESSICA writes:HI, DEAR MR.OLD MAN, CAN U PLS TELL ME HOW LONG TIME CAN GET TELEX FROM ANOTHER BANK ? CAN GET IN THE SAME DAY IMMEDIATELY ? THANKS

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9. 

   mroldmanvcb

   August 31, 2010 at 1:08 pm

   Dear Jessica,Like other banks in the world, our bank are now using SWIFT (instead telex) for transmission of bank to bank messages. However, 15 years ago or more banks communicated by telex. My past experience showed that messages were sent and received at the same time.Best regards,Mr. Old Man

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10. 

    anonymous

    October 22, 2010 at 10:10 pm

    Sarah writes:Can LC issuing bank refuse to pay if it accepted the documents? The applicant is now avoiding any contact. ILC is unconfirmed. country is Nigeria… we believe the applicant did receive the documents and cleared the cargo… so he is now the rightful owner of goods. what are our chances of getting paid? would really appreciate your help in this matter.

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11. 

    mroldmanvcb

    October 23, 2010 at 4:10 pm

    The issuing bank must pay upon receipt of the complying documents. It must pay even when the complying documents are lost in transit. Once accepting and releasing the documents (whether complying or not)to the applicant the issuing bank must pay. If it refuses to pay, the beneficiary/negotiating bank can take legal action against the issuing bank. LCs issued by banks in countries whose economy and politics are unstable need confirmation of first class banks.

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12. 

    anonymous

    March 16, 2011 at 3:03 pm

    sidharth mohan writes:Respected Sir,If the title documents (in our case it is the lorry receipt) has been released to the buyer before payment from his side to the seller or the remitting bank. As per the UCP 600, the issuing bank has certain obligations and duties towards the seller. So in the present senario isin't the the issuing bank estopped from challenging any discrepencies in the letter of credit(irrevocable) after delivery of goods to the buyer. Sir it would be very kind of you to give me some supporting cases if possible some court cases in order fr me to understandand this.Regards. Thank you

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13. 

    mroldmanvcb

    March 16, 2011 at 11:03 pm

    First, under UCP 600 lorry receipt is not a document of title. However, if the issuing bank releases the lorry receipt presented under the L/C to the applicant to enable him to take delivery of the goods, the issuing bank must honour notwithstanding whether or not the documents are found to contain discrepancies. Similarly, if the issuing bank issues a shipping guarantee to enable the applicant to take delivery of the goods without production of the B/L, it is obliged to take up the underlying documents once presented and honour irrespective of any discrepancies contained therein.This is always true and correct. No need to show cases or court cases to support the view.Best regards,Mr. Old Man

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14. 

    anonymous

    March 17, 2011 at 12:03 am

    Anonymous writes:Respected Sir,Thank you so very much fr that quick reply , i highly appreciate it.If dis is looked from the viewpoint of UCP 500 , say the L/C was signed and executed before the implementation and use of UCP 600 would this rule still apply without any need of supporting judgements.Thanking YouRegards,Sidharth Mohan.

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15. 

    anonymous

    March 25, 2011 at 11:03 pm

    Anonymous writes:I'm sure Mr. Old Man would agree that whether under UCP500,UCP600, or URC, the principle would still hold true. In fact, this fundamental principle has no bearing on UCP, but rather, underlines the legal viewpoint that documents tendered under an LC at all times remain the property of the beneficiary, and at his disposal, until they are paid for. Therefore, if the issuing bank loses control of the documents, and releases them to the buyer, without the beneficiary's consent, then they are liable to pay. Of course, where documents are compliant, the issuing bank would in any case, release the documents to the applicant without the beneficiary's consent, but the inference here is that the issuing bank is engaging to pay.

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16. 

    anonymous

    March 26, 2011 at 1:03 am

    Anonymous writes:So the bank can only refuse payment on LC when documents are discrepant, any other circumstances where the bank can do so ?

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17. 

    anonymous

    March 26, 2011 at 2:03 am

    Abrar writes:Other circumstances would include legally enforced court injunctions

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18. 

    mroldmanvcb

    March 26, 2011 at 8:03 am

    Originally posted by anonymous:

    Anonymous writes: I'm sure Mr. Old Man would agree that whether under UCP500,UCP600, or URC, the principle would still hold true. In fact, this fundamental principle has no bearing on UCP, but rather, underlines the legal viewpoint that documents tendered under an LC at all times remain the property of the beneficiary, and at his disposal, until they are paid for. Therefore, if the issuing bank loses control of the documents, and releases them to the buyer, without the beneficiary's consent, then they are liable to pay. Of course, where documents are compliant, the issuing bank would in any case, release the documents to the applicant without the beneficiary's consent, but the inference here is that the issuing bank is engaging to pay.

    Abrar! I think it's your comment. It's excellent!The issuing bank must pay if it has released the documents to the applicant irrespective of whether the documents are complying or discrepant. Notwithstanding this truth, the issuing bank must abide by the court injunction, e.g., stop payment or temporarily retain part of the amount to be paid pending the final award of the court.

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