CUMULATIVE REVOLVING LETTER OF CREDIT

23 Comments

1. 

   anonymous

   October 26, 2010 at 9:10 pm

   zost writes:The bankers are always requested to give good advices to their client, so you should be very cautious whith "revolving" Letters of Credit, mainly because none of expressions used in these L/C are defined in UCP, like "revolving", "to revolve", "(non-)cumulative" etc. You are always on your own to define all these terms in the L/C itself. For example, what if one or more deliveries are not executed? Is it a good deal to order revolving L/C for USD 1 million (and to pay fees for that amount) for 10 deliveries and to finish it with only 3 deliveries from your partner? Are there and what are latest delivery dates for any particular delivery. What if some deliveries remain unpaid because of non-complying presentation? For all of these questions, you should have a good advice for your client and you should define all of that in L/C itself. So why bother with those clumsy and unclear revolving eLCees if you can "design" cheaper and more effective instrument – more about that in next comment…

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2. 

   mroldmanvcb

   October 26, 2010 at 10:10 pm

   Hi Zost,Appreciated.Perhaps before making your comment, you had not read one of my answers regarding revolving L/Cs from the following path:http://my.opera.com/mroldmanvcb/blog/2010/03/15/revolving-letters-of-creditIn this post I draw the asker's attention to my warning as follows:QuoteP/s: It is advisable for the importer that he should take great caution when providing his customer with a revolving L/C since the maximum exposure of the importer under a revolving L/C is not the amount of the L/C, but the amount of the L/C multipled by the number of periods. Unquote

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3. 

   anonymous

   October 27, 2010 at 12:10 am

   KTDN writes:cho chau hoi tu chinh LC bang cach tu chinh time giao hang,keo dai thoi gian giao hang thi co hop le khong?Thanks Chu !

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4. 

   mroldmanvcb

   October 27, 2010 at 5:10 am

   It's ok provided the issuing bank, the confirming bank if any, and the beneficiary agree.

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5. 

   dbinhle08

   October 28, 2010 at 11:10 pm

   Dear Mr Old Man !! Would you please to give me some information 'bout MT103, BEN, SHA, OUR 'cos I look up on internet but no specific information about it. Thanks alot

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6. 

   abrar2

   October 29, 2010 at 6:10 am

   BEN – Charges to be borne by the beneficiary OUR – Charges to be borne by the ordering customer SHA – Charges shared between ordering customer and the beneficiary

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7. 

   mroldmanvcb

   October 29, 2010 at 12:10 pm

   Hi dbinh@,Abrar has given a full and correct answer.Thanks, Abrar.

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8. 

   dbinhle08

   October 29, 2010 at 6:10 pm

   Thanks a lot, guys 😀

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9. 

   anonymous

   October 31, 2010 at 10:10 pm

   NHColactic writes:Chau muon hoi C/O trong truong hop nao thi do co quan nha nuoc co tham quyen cap?khi nao do nguoi xuat khau cap?Thanks Chu ah.

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10. 

    mroldmanvcb

    November 1, 2010 at 7:11 am

    It depends on LC requirement. Please refer to the following: http://en.wikipedia.org/wiki/Certificate_of_origin

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11. 

    anonymous

    November 3, 2010 at 9:11 am

    NHColactic writes:chau muon hoi su khac biet giua LC giap lung va LC la nhu the nao?Cam on CHU nhieu.

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12. 

    mroldmanvcb

    November 3, 2010 at 10:11 am

    Back to back LC liên quan đến 2 LC riêng lẻ. LC thứ 1 được phát hành theo yêu cầu của người mua, ví dụ ở Singapore, cho người thụ hưởng là nhà buôn trung gian, ví dụ ở Vietnam . LC thứ 2 được phát hành theo yêu cầu của nhà buôn trung gian ở Việt nam cho người thụ hưởng là nhà cung cấp hàng hóa/dịch vụ, ví dụ ở Thailand. Nhà cung cấp này có thể giao hàng trực tiếp cho người mua ở Singapore.LC thứ 2 nên quy định sao cho chứng từ xuất trình giống như chứng từ được yêu cầu theo LC thứ nhất (ngoại trừ hóa đơn và hối phiếu). LC thứ 2 có một số thay đổi so với LC thứ nhất:- Số tiền LC (thường thấp hơn LC thứ 1)- Đơn giá (thường nhỏ hơn)- Ngày giao hàng chậm nhất và hiệu lực xuất trình chứng từ (thường sớm hơn LC thứ nhất) nhằm tạo điều kiện cho nhà buôn trung gian thay đổi hóa đơn và hối phiếu và thực hiện chiết khấu chứng từ theo theo LC thứ nhất kịp thời.- …Ngân hàng xử lý giao dịch LC giáp lưng phải hết sức cẩn trọng. Ngân hàng phát hành LC thứ 2 thường là ngân hàng thông báo LC thứ nhất. LC thứ 1 cần phải hạn chế thanh toán tại ngân hàng thông báo/ngân hàng phát hành LC thứ 2 bởi vì nguồn tiền thanh toán cho LC thứ 2 là từ số tiền chiết khấu của LC thứ 1.Tóm lại, LC giáp lưng được phát hành trên cơ sở và bảo đảm của LC thứ 1 với các điều kiện và điều khoản tương tự như LC thứ 1 ngoại trừ một số thay đổi đã nêu. Nếu tách rời ra thì đó là hai LC độc lập như những LC thông thường và về hình thức thì không có sự khác nhau để phân biệt.

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13. 

    mroldmanvcb

    November 3, 2010 at 10:11 am

    Questions in English are encouraged as there would be more comments from international experts. What's more. People irrespective of their nationality may benefit from this blog.

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14. 

    anonymous

    November 3, 2010 at 3:11 pm

    THU writes:Mr. Duc and other experts,Pls give me yr.comments relating to transferable LC.Even 2nd bene presents the complied docs then the 1st bene might make the docs unclean by replacing drafts, invoices or not presenting the docs within the limited time. so the docs may be refused to honour. Q: How to assure the 2nd bene ‘s right in this caseIf the 1 st Bene maybe pay to 2nd Bene by his own money in case of the Issuing Bank refuse to pay because of discrepant docs? Or the 2nd bene could make payment by his own money prior to his receipt from the Issuing Bank?Tks and best regards

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15. 

    mroldmanvcb

    November 3, 2010 at 4:11 pm

    1. It depends much on the transferring bank’s undertaking. You may agree with me that unless the transferring bank is a confirming bank, the transferring bank would normally incorporate the following reimbursement clause in the transferred LC: “The transferring bank will pay to the second beneficiary only when funds are received from the issuing bank”It is understood from the above reimbursement clause that whether or not the documents presented by the second beneficiary are complying, the transferring bank is not obligated to pay unless it has received the funds from the issuing bank.2. Transferring bank will deduct discrepancy fee if the documents presented by the second beneficiary contain discrepancies. The second beneficiary may protest if the transferring bank deducts discrepancy fee due to discrepancies caused by the first beneficiary.3. I do not think it is a problem if the first beneficiary agrees to pay the second beneficiary by his own money prior to his receipt of the proceeds from the issuing bank. If he expects the transferring bank to do so, he should provide the transferring bank with such a written authorization.

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16. 

    abrar2

    November 3, 2010 at 5:11 pm

    Just to add to Mr. Old Man's comments, sub-art. 38 (i) of UCP600 allows the transferring bank to exercise its discretion in forwarding the compliant documents as presented by the transferee, (for payment to the issuing bank) in the event that the beneficiary compromises the transferee's presentation, by failing to fulfil the beneficiary's own part of the bargain in presenting compliant documents (invoices, drafts, etc)

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17. 

    anonymous

    November 4, 2010 at 6:11 pm

    THU writes:Following to yr. a/m comments, the transfering bank is allowed to forward the docs of 2nd Bene to Issuing bank if the 1st bene fail to replace some necessary docs.The docs presented by 2nd bene maybe complied with the child LC but not complied with the master LC because of some conditions required in Invoice or some Bene's certs.So, in this case, does the Issuing bank has the right to refuse to make payment agaist the 2nd bene's docs? Anh how to protect the right of the 2nd Bene?Tks

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18. 

    abrar2

    November 4, 2010 at 9:11 pm

    There is bound to be an official opinion, or Docdex decision on this issue, and perhaps Mr Old Man could enlighten.However, my view is that since the the transferring bank is acting as agent (or under authority) of the issuing bank, it would be bound to honour the documents notwithstanding the mistake/omission of the transferring bank. Having honoured the presentation, the issuing bank is of course entitled to sue the transferring bank for reimbursement. As the transferee is an innocent party throughout and has performed his part of the bargain under the LC, it would hardly seem fair to penalise the transferee for an act of negligence caused by the transferring bank.

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19. 

    abrar2

    November 5, 2010 at 7:11 pm

    In fact, there has been a Docdex decision based on the above issue (Docdex Decision no 274), and concerned the negligence of the transferring bank in advising the transfer, the subsequent substitution of documents, and refusal of the documents by the issuing bank on account of discrepancies (caused by the 1st beneficiary). It was acknowledged that the transferee should be paid, but it was held that it should be the negligent transferring bank which should make payment. Provided the transferring bank agrees to abide this ruling there should not be a problem. However, should the bank refuse(or not be in a financial position)to pay, it should be remembered that as the transferable LC represents a contract between not only the issuing bank and the beneficiary, but also that between the issuing bank and the transferee, the issuing bank would remain liable to the transferee for payment until such time the transferring bank has made payment. The transferee (as does the beneficiary) retains full recourse to the issuing bank at all times.

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20. 

    mroldmanvcb

    November 6, 2010 at 5:11 pm

    Dear Abrar,I'm on business, so, I do not have time to check and answer the questions in time. Thank you for your help. Truly appreciated.Regarding the said question I'll think it over and have my answer when I come back. The situation in Docdex Decision 274 does not seem to be the same as that in the question. For reference I would like to quote in full as below:UCP 500 article 48; sub-articles 48(c) and 48(h) Relating to: UCP 500 Whether a transferring bank that has not confirmed the credit and whose location is not the place of payment is liable for its handling when it transfers a credit without amending the percentage of the insurance to provide for the amount of cover in relation to the value of the invoice of the first beneficiary; whether a claimed acceptance of an amendment made after the presentation of documents can influence the acceptance or refusal of documents DOCDEX Decision No. 274Parties Initiator: Bank T Respondents: (1) Bank I; (2) Bank H Background and transaction The issuing bank (Respondent 2) issued a transferable credit subject to UCP 500 stating that the credit was transferable by the second advising bank (Respondent 1). The second advising bank transferred the credit. The original credit was payable at the counters of the issuing bank. The Initiator presented the second beneficiary's documents at the counter of Respondent 1, which presented the first beneficiary's documents to the issuing bank, which refused the presentation due to discrepancies. Issue(s) Whether a transferring bank that has not confirmed the credit and whose location is not the place of payment is liable for its handling when it transfers a credit without amending the percentage of the insurance to provide for the amount of cover in relation to the value of the invoice of the first beneficiary As a consequence, the issuing bank refused the presentation due to the insurance coverage being less than 110 per cent of the value of the invoice presented and substituted by the first beneficiary and for the absence of an inspection certificate Whether a claimed acceptance of an amendment made after the presentation of documents can influence the acceptance or refusal of documents Documents received by the issuing bank (Respondent 2) included those originally presented by the second beneficiary, plus those that were substituted by the first beneficiary. Initiator's claim The Initiator claims that the transferring bank (Respondent 1) is liable to pay the amount of the second beneficiary's complying documents plus interest, due to the negligent transfer of the L/C and the fact that documents presented by the second beneficiary were in compliance with the transferred L/C. Respondent 1's reply Being the second advising bank and transferring bank under a credit stating that it is payable at the counters of the issuing bank, and having so stated this fact to the second beneficiary, Respondent 1 claims not to have any obligation. It further states that goods were consigned to the issuing bank and that the second beneficiary accepted the amendment after goods were sent and documents presented. Respondent 2's reply Respondent 2 claims that UCP 500 (article 48) does not exclude a transfer from being made by a bank that is not a nominated bank. It also claims that it is authorized to refuse documents not complying with the terms of the credit. Documents submitted by the parties Documents submitted by the Initiator 1. Request from the Initiators of 24 January 2008 to the ICC International Centre for Expertise Paris, requesting a DOCDEX Decision in accordance with ICC DOCDEX Rules, ICC Publication No. 811, stating inter alia: a) that a copy of the Request and all documentation was sent to the Respondents; b) the Initiator's Summary of the Dispute; 2. copies of the credit and several documents relating to the credit and the dispute. Documents submitted by Respondent 1 1. Answer to the Initiator's Request 2. copy of the credit and the relevant AWB Documents submitted by Respondent 2 1. Answer to the Initiator's Request 2. copy of the credit and the relevant correspondence Analysis The credit clearly states that it is not to be confirmed by either the advising or second advising bank and that it is payable at the counters of the issuing bank. It further states that documents must be received by the issuing bank within 21 days of shipment. The bank nominated to transfer was the second advising bank (Respondent 1). The second advising and transferring bank (Respondent 1) stated in its advice that the credit was payable with the issuing bank and that documents presented to it would be forwarded to the issuing bank and that payment would be effected only on receipt of good funds from the issuing bank. If the conditions of the credit are imprecise, or if the transferring bank was unsure of its obligation under UCP, it should have refused to transfer the credit according to sub-article 48 (c). It is evident that the transferring bank did not use the possibility stated in sub-article 48(h), second paragraph, to require a higher percentage for the insurance, which was necessary for the CIF delivery as stated in the L/C. It should be noted that this Incoterm is contrary to the documents stipulated, which clearly required an air transport document. Both the issuing bank and the advising and second advising bank were not careful enough in issuing and advising a credit with contradictory clauses, but in the absence of clarity in the requirement for insurance, any document evidencing insurance, given the reference to air freight, should be acceptable. The documents received by the issuing bank did not represent the presentation of the second beneficiary, but that of the first beneficiary. Documents received by the issuing bank (Respondent 2) included those originally presented by the second beneficiary, plus those that were substituted by the first beneficiary. The issuing bank was not in a position to make a judgement on whether or not the presentation of the second beneficiary was complying or discrepant. The only possible circumstances in which the issuing bank could have received a presentation from the second beneficiary would be if there was no substitution of documents. However, all parties agreed that substitution did occur. The issuing bank's argument for refusal concerning a missing inspection certificate which was requested in the amendment is not valid. The second beneficiary had already dispatched the goods and presented documents before the amendment was received requesting the presentation of an inspection certificate. It was not even proved that the beneficiary subsequently accepted the amendment. Conclusion The fact that the issuing bank (Respondent 2) regards the presentation made by the first beneficiary as discrepant is due to the negligence on the part of the transferring bank (Respondent 1) in failing to make the necessary changes requiring a higher percentage for the insurance in order to maintain the insurance value at 110 per cent of the invoice value of the original credit (before transfer of the credit reduced the invoice value). The issuing bank's argument is based on the presentation as received by it, i.e., including documents presented by the first and second beneficiaries, but this (DOCDEX) case was not brought to examine this. It is only to examine the issue of whether the presentation of the second beneficiary should be paid and whether the second beneficiary should be recompensed for delay in such payment Therefore, the responsibility lies with the transferring bank to pay against this presentation, plus interest. When the transferring bank decided to transfer the L/C, it took on the responsibility to make the changes necessary (sub-article 48(h)). If it did not wish to take on the responsibility, it could have chosen not to transfer the L/C. Negligence on the part of the transferring bank is established and absolves the issuing bank from any reimbursement requirement, despite the fact that the L/C was unconfirmed on the part of the second advisin
    g and transferring bank. The fact that the Initiator is not a party to the credit does not change our conclusion, as he is protected as the presenter, representing the second beneficiary. The presenting bank's right to be covered is – as also stated by the issuing bank – not related to the presenting bank's financing of the presentation made by the second beneficiary. Respondent 1 has no reason to deny liability and must pay the claimed amounts. The appointed Experts reached a unanimous Decision.

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21. 

    mroldmanvcb

    November 8, 2010 at 11:11 am

    Dear Abrar and Thu,The following is quoted from ICC Document n° 470/977 Rev.3 30 October 2002 (Transferable credits and the UCP 500).QuoteIf the first beneficiary elects to substitute his invoices and draft(s), if any, for those of the second beneficiary and fails to do so on first demand, the nominated bank may forward the documents – including invoices issued by the second beneficiary addressed to the first beneficiary – and the issuing bank must accept them as a valid document under their credit.UnquoteThe above statement is repeated from ICC Opinion R.374.Best regards,Mr. Old Man

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22. 

    anonymous

    August 19, 2013 at 2:08 pm

    Anonymous writes:Please answer the question. Can the bank transfer a revolving LC?As I understand we can transfer LC only one time. So what we should do if we receive transferable revolving LC.Thank you!

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23. 

    mroldmanvcb

    August 20, 2013 at 12:08 am

    Why not? I see that revolving LC is not covered by UCP. However, if a revolving LC says it is transferable then it is transferable.

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