WHICH PARTY IS LIABLE FOR PAYMENT?

QUESTION

Dear Sir

I hope this mail finds you well. I am Juwel from Bangladesh and have been working in the trade finance department of a bank. I am really delighted to mention that I am one of your biggest fan and follower of you and your blog. Your blog on different subject helped me a lot in learning trade and solving different issues regarding trade finance.

Today I have come across an issue which needs an expert opinion and for that I think you are the best.

The problem is that the beneficiary has presented the documents to the issuing bank which includes multiple discrepancies and another point to be noted that ” Bill of lading was made out to the order of the applicant as a result the applicant didn’t need endorsement of the issuing bank and released the goods on their own. But the problem is that now the applicant is not willing to make payment.

My question is

1) Is the issuing bank liable to make payment under this circumstances?

2) If the applicant does not want to make payment what the beneficiary can do to have the payment.?

I hope this mail reaches you so that I can have your expert opinion on this issue.

Best Regards

Bangladesh

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ANSWER

Good morning, Juwel

Thank you for your interest in my blog and I am glad that you have found it helpful for your work.

You did not tell me whether the issuing bank gave a notice of refusal and whether it delivered the documents to the applicant. So, my answer is based on the following assumptions:

Assumption 1:

The issuing bank gave a notice of refusal but later it delivered the documents to the applicant to enable him to take delivery of cargo.

Once having released the documents to the applicant the issuing bank must pay irrespective of whether the bill of lading is made out to its order or to the order of the applicant. The beneficiary may take a legal action against the issuing bank if he has received no payment from the issuing bank.

Assumption 2:

The documents were presented under the LC subject to UCP 600 and the issuing bank failed to give a notice of refusal within 5 banking days as per article 16 UCP 600.

The issuing bank must pay the beneficiary as it was precluded from claiming that the documents do not constitute a complying presentation. If not, the beneficiary may take a legal action against the issuing bank.

Assumption 3

LC required the presentation of documents including 2/3 original bills of lading made out to the order of the applicant and 1/3 original bill of lading to be sent directly to the applicant.

The issuing bank gave a notice of refusal due to discrepant documents. However, 1/3 original bill of lading were sent directly to the applicant who endorsed it to take delivery of the cargo from the shipping company.

If this is the case, the issuing bank is not liable to pay unless the applicant accepts to take up the documents and pay. The beneficary may take a legal action against the applicant if he has received no payment from the applicant or the issuing bank.

Hope my quick answer can help you.

Best regards,

Mr. Old Man