WHERE THE PRESENTING/COLLECTING BANK DOES NOT ACT IN GOOD FAITH OR EXERCISE REASONABLE CARE

QUESTION

Dear Mr. Old Man,

I have a case to seek your advice. Our bank has forwarded 6 sets of D/P(s) for USD525,000 to a bank in Egypt with the instructions “Release Documents against Payment”. After many payment tracers, the collecting bank replied that all sets of D/P have been released against 30 days, 60 days, 120 days…from health approval date (as payment instruction on cover letter). Because of our arguments, they sent back the photocopies of Fake Cover Letters to prove their action. Payment instruction and form of Fake Cover letter were completely changed.

What can I do now?

Many thanks.

A.

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ANSWER

Hi,

Under URC 522, the collecting/presenting bank must act in good faith and with reasonable care, following the remitting bank’s instructions strictly. In your case, the instructions were clear: “Release Documents against Payment.” If the collecting bank released the documents on different terms, and especially if fake cover letters were used to justify that release, this constitutes not just non-compliance but likely fraud.

The use of falsified cover letters indicates a serious breach of trust. In such cases, fraud must be considered and addressed accordingly.

That said, in documentary collections:

• The remitting bank acts on behalf of the exporter (the principal).
• The collecting bank is typically designated by the importer and is responsible for releasing documents only under the remitting bank’s instructions.
• If something goes wrong — e.g., the importer defaults or the collecting bank mishandles the documents — it is the exporter, not the remitting bank, who initiates legal action.

The remitting bank’s role is to support the exporter by providing all necessary documentary evidence, including the original cover letter, SWIFT instructions, and any communication history with the collecting bank.

Given the size of the deal — USD 525,000 — and the apparent use of falsified documents, legal action may be warranted. The exporter should engage a lawyer specialized in international trade finance and consider notifying the banking regulator or central bank in the collecting bank’s jurisdiction.

Best regards,

Mr. Old Man