RISKS TO THE ISSUING BANK WHERE BILL OF LADING IS ISSUED TO THEIR ORDER

RISKS TO THE ISSUING BANK WHERE BILL OF LADING IS ISSUED TO THEIR ORDER

JSMITH – United Kingdom Posted 13 Jul 10 |

What risk, if any, does a bank incur where it issues a credit requiring bills of lading made out to the order of the issuing bank?

Thanks, in advance, for your views.

Duc N.H – Viet Nam Posted 14 Jul 10 |

Hi Jeremy,

Notwithstanding that more than 95% of L/Cs issued by our bank always require B/L issued to our bank’s order, so far our bank has not incurred any risk. This does not always mean that there will be no risks. Potential risks will appear when the documents presented are complying but the applicant has gone bankrupt or disappeared in thin air for some reason. If this is the case the issuing bank will encounter some risks and difficulties as follows:

– to honour the documents and take delivery of the goods
– to be liable to carrier, agent, and port authorities for unpaid freight, freight surcharges, demurrage and other liabilities.
– to be liable for customs clearance. I think it depends on each country’s customs regulations but I believe the formalities required must be much more complicated than in the case where the applicant takes delivery of the goods.
– to sell the goods to recover the costs paid. I’m afraid the issuing bank is not allowed to sell the goods directly to others as their business line does not include trading of goods.

Bank staff do not have experience in handling these transactions. If this is the case the issuing bank should sell the goods to another eligible buyer by endorsing the b/l to that buyer.

Regards,
Duc N.H
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JSMITH – United Kingdom Posted 15 Jul 10 |

Thanks for your quick and comprehensive reply; its appreciated.

Regards, Jeremy
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Daniel D- Switzerland Posted 15 Jul 10 |

I agree. As long as you do not enforce your rights under the B/L you are not part of the transport contract. But if you enforce your rights you are with the consequences described by Duc N.H. If you have to enforce your rights, the first thing to do is to go to Legal.
Daniel
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P/S: DUC N.H IS ANOTHER NAME OF MR. OLD MAN IN DC-PRO FORUM