OBLIGATIONS AND LIABILITIES OF A TRANSFERRING BANK UNDER A TRANSFERRED LC

7 Comments

1. 

   SUBHASH

   February 10, 2016 at 6:51 pm

   Dear Mr. Old man,
   What happens when second beneficiary submits complying document but first beneficiary fails to submit complying documents and the applicant refuses to accept the documents and so also goods and does not release payment? Does it mean even the second beneficiary loses right to receive payment under LC?

   regards, Subhash

   Reply

• 

  mroldman

  February 11, 2016 at 10:56 pm

  Will answer when having time.

  Reply

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  mroldman

  February 12, 2016 at 4:19 pm

  Hi,
  Good question!
  It is agreed that unless the transferring bank is the confirming bank, it would undertake to pay the second beneficiary only after receipt of the payment from the issuing bank.
  With regard to the case where the first beneficiary is to present its own invoice and draft (if any), UCP 600 sub-article 38 (i) just says that if the first beneficiary is to present its own invoice and draft, if any, but fails to do so on first demand, or if the invoices presented by the first beneficiary create discrepancies that did not exist in the presentation made by the second beneficiary and the first beneficiary fails to correct them on first demand, the transferring bank has the right to present the documents as received from the second beneficiary to the issuing bank, without further responsibility to the first beneficiary.
  Neither UCP nor ICC gives a firm answer that the transferring bank must pay the second beneficiary if it fails to act in accordance with sub-article 38 (i). It just says that the transferring bank should act in accordance with sub-article 38 (i) and, if necessary, utilise the second beneficiary’s documents as good tender under the credit.

  I have found an issue similar to yours in Document n° 470/977 Rev.3 (Transferable credits and the UCP 500 Commission on Banking Technique and Practice, 30 October 2002). However, ICC did not give a direct answer as to whether or not the transferring bank must pay the second beneficiary.

  For your reference, please find below the issue and ICC’s answer:

  QUOTE

  Issue:
  Bank B, when transferring the credit, failed to increase sufficient insurance coverage to cover the 110% of the first beneficiary’s invoice. Bank C in Country X received the documents and found them to be in order in terms of the transferred credit and negotiated the documents and forwarded them to the transferring bank for payment. Bank B (the transferring bank), while substituting the draft and invoices, received discrepant invoices and draft (merchandise description on invoice did not conform to the credit). Bank B forwarded the documents to the issuing bank for payment and the issuing bank refused payment for the following discrepancies: 1. insufficient insurance cover 2. description of goods not as per L/C. The issuing bank returned the documents by next mail to the transferring bank. What is the liability of the transferring bank in this case? Can the transferring bank be compelled to reimburse the second beneficiary’s bank even though it had a conditional payment clause on the credit or has the transferring bank no risk or liability at all as regards the documents?

  Answer:
  The documents, as received by Bank B, would appear to have met the terms of the transferred credit. The presentation of non-conforming invoices and draft in substitution for those of the second beneficiary did not change the acceptability of the initial presentation. The disposal of the documents (including the substituted invoices and draft) should only have occurred with the agreement of the first and second beneficiaries. On the basis that the second beneficiary’s documents conformed to the transferred credit, Bank B should have acted in accordance with the provisions of sub-article 48(i) [Mr. Old Man: now sub-article 38(i)] and, if necessary, utilised the second beneficiary’s documents as good tender under the credit.

  UNQUOTE

  Kind regards,
  Mr. Old Man

  Reply

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  Diệp Tử Vũ

  September 28, 2016 at 12:05 am

  Mr Old Man có thể cho cháu xin 1 vài case study về tranh chấp trong thanh toán bằng L/C chuyển nhượng được không ạ? Và cách giải quyết của nó nữa ạ. Cháu cám ơn Mr. Old Man.

  Reply

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  mroldman

  September 28, 2016 at 9:23 am

  Very sorry but I do not have any case with regard to transferred LC disputes!

  Reply

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  Linh

  December 18, 2022 at 4:31 pm

  Dear Mr Old Man

  In the above case, if the transferring bank forwards the second beneficiary’s documents to issuing bank but the presentation still consists discrepancy for insurance coverage due to the fact that transferred LC did not match the transferable LC’s terms, what will happend to the second beneficiary and bank C if the issuing bank deny to pay for the fist beneficiary? Will the transferring bank take some responsiblity in this case or not? And could Bank C which have negotiated second beneficiary’s documents can do anything to received the payment from transferring bank assuming that the negotiation was without recourse

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  Mr Old Man

  December 19, 2022 at 12:12 pm

  As said unless the transferring bank is a confirming bank, it undertakes to pay the secondary beneficiary only upon receipt of the payment from the issuing bank. Bank C should not negotiate the documents on without recourse basis.

  Reply