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PLACE OF EXPIRY

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QUERY
From: Tran Tuan Anh
Subject: Where LC expired

Dear Mr Old Man !

I would like to ask you a query regarding the country in which LC expired.
My bank usually open LCs in which the place expired in the country of beneficiary. However, some of LCs we received from overseas bank having the place expired in the country of buyer. Why ?

Pls comment about this

Thanks and best rgds

———————————-
COMMENT
To: "Tran Tuan Anh

Hi,

It is a common practice that LC available by negotiation would expire in the beneficiary’s country whereas LC available by payment/acceptance/deferred payment would expire in the issuing bank’s country which is also the applicant’s country.

Payment/acceptance/deferred payment LC may also expire in the beneficiary’s country in the following case:

(i) LC is confirmed by the confirming bank which is located in the benficiary’s country.
(ii) LC indicates a named nominated bank which is located in the benficiary’s country.

However, the fact that Payment/acceptance/deferred payment LC indicates a named nominated bank which is located in the benficiary’s country is not often. Practice has shown that the nominated bank under LC available by payment/acceptance/deferred payment would refuse to act on its nomination, i.e., refuse to honour the LC, unless the nominated bank is the confirming bank or has agreed in advance with the issuing bank. Its refusal is supported by UCP 600 sub-article 12 (a).

Please check at your end whether which types of LC your bank often issues and receives.

By the way, please refer to my old comment to a similar query in Letter of Credit Forum to find out more reasons why some LCs are stipulated to expire in the beneficiary’s country and some others in the buyer’s country.

Best regards,
Mr. Old Man

QUOTE
Tue, 09/11/2007 – 02:12 — nhduc.dng
LC Availability

Dear Neville Dcosta,

As you may know, an LC may be stipulated available by payment, available by negotiation, available by acceptance or available by deferred payment.

LC available by (sight) payment does not require sight drafts to be presented and normally the payment is to be effected at the counter of the issuing bank or at its nominated bank upon receipt of the complied documents. The beneficiary under LC available by payment normally may not obtain the payment in advance by negotiating (selling at a discount) the documents at his bank.

Different from LC available by payment, LC available by negotiation allows the beneficiary to receive the payment by negotiating the sight drafts and documents at a nominated negotiating bank which is normally located in his country. The negotiation may be effected on a with or without recourse basis. However, under a confirmed LC, the confirming bank must negotiate the documents on without recourse basis.
Acceptance LCs and deferred payment LCs are usance LCs. The difference is that the acceptance LC requires a time draft, whereas the deferred payemt LC does not.

Under acceptance LC, the beneficiary may receive the payment before the draft is due by discounting the accepted draft at its bank or discounting it on forfaiting markets (as the accepted draft is a financial instrument which can be transferable).

Under deferred payment LC, after his presentation of complied documents, the beneficiary receives a deferred payment undertaking incurred by the issuing bank or its nominated bank. Deferred payment undertaking is not largely accepted as a financial instrument, therefore, normally the beneficiary may not discount the deferred payment undertaking. However, in some cases, the beneficiary can use the deferred payment undertaking incurred by the issuing bank or nominated bank as a security for the advance given by his banks.

UCP 500 was silent on negotiating/discounting deferred payment uindertakings. The dispute between Banco Santander and Banque Paribas in connection with the discounting of a deferred payment undertaking led to the change in UCP. Under UCP 600 Art. 12 (b), the nominated bank is allowed to purchase (buying at a discount) its own deferred payment undertaking.

Hoping the matter has been clear.

Best regards,
Nguyen Huu Duc
UNQUOTE …

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7 Comments

  1. anonymous

    May 23, 2010 at 5:05 pm

    Zac writes:Hi Mr Old Man, For Usance LCs issued by some Asian banks, I do not often see Credit available by acceptance. More often, its credit available by negotiation. Why is that so?In addition, could you elaborate more why acceptance LC usually expires at counters of issuing banks?Thanks in adavance for your help.

    Reply

  2. mroldmanvcb

    May 24, 2010 at 8:05 am

    Hi,1) I am working for an Asian bank but I rarely come across acceptance LCs that are available by negotiation, except for those issued by some Korean banks. The acceptance LC that is available by negotiation is called UPAS LC – Usance Paid At Sight LC. I have answered the same question with regard to UPAS LC. Please refer to the following:UPAS LC 2Tuesday, 16. March 2010, 16:37:46upas-lc-2 QUERY Usance Letters of Credit We see usance Letters of Credit issued available with a bank by acceptance or negotiation. What is the difference and what are the advantages or disadvantages for an Issuing Bank or a Nominated Bank. ——————– COMMENT Usance L/C available by negotiation Hi, For your reference I would like to quote my old comment of 2007 in this forum to a similar query. Acceptance LCs and deferred payment LCs are usance LCs. The difference is that the acceptance LC requires a time draft, whereas the deferred payment LC does not. Under acceptance LC, the beneficiary may receive the payment before the draft is due by discounting the accepted draft at its bank or discounting it on forfaiting markets (as the accepted draft is a financial instrument which can be transferable). Is it possible for the bank to open an LC available by negotiation in case of usance LC ? It is possible but the question is whether the beneficiary or his negotiating bank accepts such a strange type of LC. To evidence the possibility, I ‘d like to quote hereunder some swift fields of an LC which my bank as an advising/negotiating bank has received from Bank A in Korea: = quote = 41D: Available with …. By …… ANY BANK BY NEGOTIATION 42C: Drafts at …. BENEFICIARY DRAFTS 90 DAYS AFTER B/L DATE 42A: Drawee BANK B 53A: Reimbursing bank BANK B …….. 78: Instructions to the Paying/Accepting/Negotiating Bank + BENEFICIARY TIME DRAFT SHALL BE NEGOTIATED ON AT SIGHT BASIS AND SHOULD BE FORWARDED TO THE DRAWEE BANK (BANK B). + ALL DOCUMENTS MUST BE FORWARDED DIRECTLY TO US (BANK A) IN ONE LOT BY COURIER SERVICES = unquote = By appearance, it looks like an acceptance LC as it requires time drafts (90 days after B/L date). However, it is in fact a sight LC as it allows the beneficiary to negotiate the time drafts on at sight basis. This type of L/C is called UPAS (Usance Paid At Sight). LC Sam had a very interesting comment on UPAS. You can find it in this forum by searching the term “UPAS” or just control + click the following link: http://www.letterofcreditforum.com/content/under-letter-credit 2) Under LC available by acceptance, the issuing bank rarely nominates another bank to accept the draft (as not many banks are willing to act on its nomination), hence, the LC is normally issued available with the issuing bank with the time draft drawn on the issuing bank. In other words, as the time draft is normally required to be drawn on the issuing bank, the LC must be available with the issuing bank by acceptance. Best regards, Nguyen Huu Duc

    Reply

  3. anonymous

    May 24, 2010 at 8:05 pm

    Zac writes:Thanks Mr Old Man.Sometimes, I encountered a problem which there are different views on it. Pls let me have your opinion. If my bank issues a sight LC, and import docs arrive at our counters. According to UCP600 article 14b, issuing bank has a max of five banking days following the day of presentation to determine if a presentation is complying. Say, today is the 5th working day and my bank raise no discrepancies on the import documents, must my bank pay the negotiating bank? Can my bank pay after the 5th working day, for eg, 6th working day? (because UCP600 didn't state issuing bank has to pay by 5th banking day, just say that issuing bank is precluded from claiming the docs do not constitute a complying presentation, art 16f) If my bank pays on 6th working day, is the negotiating bank entitled to claim interest from us? (LC did not state interest claim)Hope to hear from you soon.

    Reply

  4. abrar2

    May 24, 2010 at 9:05 pm

    The concept of a "safe harbour" period is now well established under UCP600, and provides for a period by which time the bank must decide whether the documents comply. An issuing or confirming bank which fails to adhere to the prescribed time limits, would be precluded from rejecting the presentation and must honour. A non-confirming bank would not be bound to pay but may run the risk of recourse being sought by the benficiary for payment delay. Although the concept of "reasonable time" has now been removed from UCP500, sub-article 14b of UCP600 refers to a "maximum", giving rise to the possibility that a period less than the maximum 5 days, given the specific circumstances of the issuing bank, may also be appropriate.As you indicate, the UCP does not prescribe a time limit by which payment must be made, but again, the concept of a a "reasonable" time surfaces. It may be "reasonable" (and precribed under LC terms)for an attendant delay of say 1-3 days after determining documents to be in order, and perhaps "unreasonable" for a delay of say, 10 days (if not specifically addressed under the LC).If the nominated bank "negotiates" and purchases the documents, it would have deducted an element of delay payment interest. Absent any agreement between the beneficiary and the negotiating bank regarding additional interest settlement, it would be difficult to claim from the beneficiary. Whether the amount could be realised easily from the issuing bank, is also open to question.

    Reply

  5. mroldmanvcb

    May 25, 2010 at 10:05 am

    Excellent answer, Abrar Ahmed. Truly appreciated.

    Reply

  6. Abdullah

    July 15, 2016 at 5:19 am

    Hi,

    I have a question I was hoping you could help out with. I’m stuck up in a rather difficult situation with my client. We are the beneficiary of a letter of credit. We have presented the documents necessary to the client for signatures and subsequent submissionn to the bank. They have all the documents required to be submitted to the bank in their possession but they just won’t sign. The LC is soon to be expired. I would like to inquire how exactly we could protect ourself and guarantee our payment if the LC expires (but we have proof of performance).

    Appreciate your comments and help.

    Regards,

    Reply

    • mroldman

      July 19, 2016 at 11:36 pm

      Hi,

      Sorry for my late reply. I went to the US for 10 days and just came back home today.

      Where the LC expires, the issuing bank under the LC ceases to exist.

      The beneficiary should bear in mind that a letter of credit or any amendment thereto should not require presentation of a document that is to be issued, signed or countersigned by the applicant. If, nevertheless, a credit or amendment is issued including such a requirement, the beneficiary should consider the appropriateness of such a requirement and determine its ability to comply with it, or seek a suitable amendment.

      The problem now is left to the willingness of the applicant or to the court if it is brought to court for settlement of the disputes.

      Kind regards,
      Mr. Old Man

      Reply

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