QUESTION
Hi there Mr. Old Man,
I was very interested to read your site and see your passion in this area.
It could be just what I need for helping with the following question.
Right now I have a set of documents ready for bill of lading, invoice, cert of origin etc.
The opening bank is in Pakistan (call it OB1) and the receiving bank is in USA.
The documents are already and made out to OB1 but there is a clause in the LC that prevents payment of the money until after Feb 20th.
Because of this the buyer wants to get the documents sent to a different bank (call it OB2).
Their opinion that the negotation will be under discrepancies because of the incorrect bill of lading (OB1) but in such case they will simply accept all the discrepancies and the payment will be made.
The question is to you see this working or anywhere that it is definitely going to go wrong. Cannot be done.
Alternatively, solution 2. Is to release goods under shipping/bank guarantee.
In such circumstances now the risk shifts to the bank making the payment if the buyer doesn’t.
Is there any time that you know of where a bank in Pakistan defaulted on a bank guarantee release?
What happens to a bank if they default on a guarantee? The current issues with Central Bank funding in Pakistan make this a greater concern?
Do you think it can/will go wrong if following this route?
Many thanks and hopefully you get this and are willing to reply.
Kind Regards
A
—————
ANSWER
H,
The issuing bank (OB1), if waiving the discrepancy or issuing a shipping guarantee, will only make payment in accordance with the clause in the LC, i.e., payment on Feb 20.
If the applicant (buyer) really wishes to pay earlier than Feb 20, he can instruct the issuing bank to do so provided that he deposits enough funds for the issuing bank to pay.
If the LC was issued by OB1, the documents can only be presented to OB1 or the nominated bank (if any). They cannot and should not be presented to another bank (OB2), which is not the issuing bank or the nominated bank.
In case there is a bank in USA agreeing to negotiate the discrepant documents, this would be done on recourse basis., i.e., if the negotiating bank does not receive payment from the issuing bank, it will have recourse to the beneficiary.
I cannot tell you which banks in Pakistan are reliable or which banks are not. If the issuing bank has issued a shipping guarantee to enable the applicant to take delivery of the goods, it must pay whether the documents received contain any discrepancy. If it fails to pay, the beneficiary can sue the issuing bank.
Good luck!
Mr. Old Man
