Mr Old Man Q&A OBLIGATIONS AND LIABILITIES OF A TRANSFERRING BANK UNDER A TRANSFERRED LC By Mr Old Man Posted on August 4, 2015 6 min read 7 0 4,297 Share on Facebook Share on Twitter Share on Google+ Share on Reddit Share on Pinterest Share on Linkedin Share on Tumblr QUESTION Dear Mr. Old Man, I’m trying to find a clause in UCP 600 or any related source showing that in transferable LC, transferring bank only settle the payment claim to second beneficiary upon their receipt of settlement from issuing bank. Could you give me advice for this case. Why don’t ICC translate the case to UCP? I urge you post this issue to the committee asap. Thanks a lot TD ————- ANSWER Hi, It is true that you cannot find any provision in UCP 600 stating that the transferring bank will pay upon receipt of the proceeds from the issuing bank as it is a clause in the transferred credit. Please note that unless the transferring bank is the confirming bank an authorization by the issuing bank for the transferring bank to transfer the credit does not impose any obligation on the transferring bank to honour or negotiate the complying documents presented by the beneficiary. That is the reason why the transferring bank would undertake to pay upon receipt of the proceeds from the issuing bank. ICC has published some opinions on the obligations and liabilities of a transferring bank under a transferred credit. Please find attached below ICC’s related analysis and conclusion in their Opinion R482. QUOTE Analysis and conclusion A) Atransferring bankwhen issuing its advice of transfer to the second beneficiary provides either an unconfirmed or a confirmed credit. The type of advice is dependent on the instructions in the original credit as to whether or not the credit was to be confirmed and whether the advising and nominated transferring bank agreed to such a request. If the transferring bank has not added its confirmation to the transferred credit, it has no obligation to effect payment. If it has confirmed then it must honour the drawing of the first and second beneficiary, notwithstanding the position of the issuing bank and its ability to provide reimbursement. In any case, the documents belong to the second beneficiary until the presentation is honoured. If the transferring bank has taken up documents, i.e. negotiated or forwarded them without the authorization of the presenter, it would be liable for payment. …… (C) If the transferring bank has made a promise to pay the beneficiary at maturity, it has presumably added its confirmation to the credit. This is a documentary risk that any bank which adds its confirmation takes. In the event of a dispute as to the acceptability of the documents presented (under a transferred credit which is confirmed), it is to be resolved between the issuing bank and the transferring bank, without the involvement of the first or second beneficiary. (D) This type of clause will typically be seen on credits for which the transferring bank has not added its confirmation. It is more a statement highlighting the position of the transferring bank as a nominated bank in line with sub-Article 10(c) of UCP 500, rather than the bank’s position under Article 48. Sub-Article 48(c) is there to demonstrate that whilst a bank may be nominated to transfer, it is under no obligation to do so. However, if it does so, it is to the extent and manner to which it is willing to act with due regard to the remaining sub-Articles of Article 48 and other pertinent Articles of UCP 500. UNQUOTE I hope you are now satisfied with my answer Kind regards, Mr. Old Man
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?
IS THE NOMINATED BANK REQUIRED TO VERIFY WHETHER THE BENEFICIARY HAS AUTHORIZED THE PRESENTING BANK TO PRESENT THE DOCUMENTS?
CAN THE ISUING BANK CITE “LATE PRESENTATION” AS A DISCREPANCY SOLELY BASED ON THE DATE OF THE COVER LETTER?