TRANSFERRING BANK'S LIABILITY UNDER TRANSFERRED LC

QUERY FROM MOON

Hi Mr. Old man,

Could you give me a word of advice in this case? Details as follows:

A transferable L/C is issued by bank A in favor of Ben 1 and Ben 1 transfer this LC to Ben 2 by MT720 through bank B (the bank is nominated as transfering bank in original LC).

Ben 2 presents docs to bank B. – After checking docs, bank B determines that presentation does not comply with the terms and conditions of LC and advises Ben 1. However, bank B also notifies to Ben 1 that acc to UCP 600 they are not entitled to refuse payment under the credit, even if the docs does not conform to the credit, only the issuing bank has that right.

So, the questions is Whether action of bank B is correct or not ??? Would you do the needful to give me some advice as soon as possible?

Thank you so much
Best regards,

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MR. OLD MAN’S COMMENT

Hi,

Thanks for asking Mr. Old Man.

You may agree with me that unless the transferring bank is a confirming bank, the transferring bank would normally incorporate the following reimbursement clause in the transferred LC:

“The transferring bank will pay to the second beneficiary only when funds are received from the issuing bank”

It is understood from the above reimbursement clause that whether or not the documents presented by the second beneficiary are complying, the transferring bank is not obligated to pay unless it has received the funds from the issuing bank.

In view of the above reimbursement clause, I think it is not necessary for the transferring bank to give a notice of refusal (of payment) to the second beneficiary when the documents presented to its counter are discrepant. However, if the transferring bank receives the notice of refusal from the issuing bank, I think it should notify the first beneficiary as well as the second beneficiary of the same.

UCP 600 Article 38 (i) states that 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.
The above provision does not clearly state whether the transferring bank is obligated to notify the first beneficiary of the discrepancies in the documents presented by the second beneficiary. However, at least the provision makes us think that the transferring bank should do so.

Best regards,
Mr. Old Man (Nguyen Huu Duc) …