QUERY
Dear Mr.Old Man,
Your comment on the following is appreciated.
On 12 Nov 2009 our bank issued LC No. 1234 for EUR45,000. The LC stipulated “all charges outside Vietnam are for the beneficiary’s account and shall be deducted from the proceeds.”
On 27 April 2010 we paid the documents presented by Bank X in accordance with their instruction. However, on 23 July 2010 we received an MT 799 from Bank X claiming for their charges as they had failed to claim from the beneficiary. Their reasoning was based on UCP 600 sub-article 37 (c).
Is our bank obligated to pay such charges? If not, can you tell me how to reject their claim?
Looking forward to your early reply.
Best regards,
V.A
———
COMMENT
Hi,
You may reply Bank X as follows:
QUOTE
We are afraid that your reference to sub-article 37 (c) is not quite appropriate in this case.
Sub-article 37 (c) is understood to be applicable to the scenario where related charges payable to the nominated bank are to be deducted from the proceeds but no proceeds have been received by the nominated bank due to, for example, no presentation is made to the nominated bank or the LC has been cancelled or has expired unutilized. If this is the case the nominated bank can claim from the issuing bank for any charges unpaid.
Your bank had the opportunity to collect the charges by deducting from the proceeds but it failed to do so. Therefore, it must be liable for its negligent mistake and is not protected by sub-article 37 (c).
Please also note that we have closed our file regarding the said LC.
UNQUOTE
If needed, you may refer Bank X to Gary Collyer’s answer to a similar question regarding Article 37 (c) quoted below:
—————————–
Article 37
A nominated bank receives a presentation of documents and effects honour thereunder, deducting certain fees. They realise a short while later that they have forgotten to deduct their advising fee. Are they able to claim from the issuing bank citing sub-article 37 (c)?
Answer:
No. The nominated bank had an opportunity to deduct the fees from the presentation and failed to do so. They are not afforded any protection under sub-article 37 (c) for the fees that they failed to collect from a presentation that was made to them.
———————-
Best regards,
Mr. Old Man
anonymous
August 4, 2010 at 11:08 am
Anonymous writes:Thanks so much for every helpful comments!!!!!! I hope that you will keep your excellent working in the future to give us answers asap!!!!
anonymous
September 4, 2010 at 2:09 am
Safee Rizvee writes:Dear Old ManOur bank negotiated the discrepant documents against the mortgaged collecteral security.. rather we have allowed a finance limit of Rs 24.00 Million to our valued cleint for negotiation of discrepant documents aginst letter of credit.. i am working in the branch as compliance officerplease tell me it is ok or not
mroldmanvcb
September 4, 2010 at 5:09 am
Your bank can accept to negotiate the discrepant documents on a with recourse basis. That is to say, if the issuing bank refuses to honour the documents, your bank can have recourse to the beneficiary for the value advanced. The key problem here is whether the beneficiary is capable to repay the money in case the issuing bank refuses the documents. Bear in mind that collateral is the last thing among 5 C's (Creditworthiness, Capacity, Capital, Condition and Collateral) that banks consider to make their decision. One thing your bank should also take into consideration is the market price. If the price of goods at the time of shipment falls down dramatically the applicant may not want to receive the goods, and hence, the discrepant documents will not be honoured.That is theoretical only. If the beneficiary is one of your bank's value clients, i.e, creditworthy, good financial standing…, your bank can accept to advance funds against the discrepant documents, of course, on a with recourse basis (and better against mortgage collateral). What's more. From my own experience, 99% of non-complying presentations are paid at last as LC is an instrument of payment, not refusal. The buyer opens LC to pay for the goods, not reject.
anonymous
September 15, 2011 at 9:09 am
Anonymous writes:Hi Mr Old manIf L/C REQUIRED INSURANCE TO COVER ALL RISK BUT DOCUMENTS PRESENTED COVER CLAUSE A, IS IT ACCEPTABLE OR WHAT IF THE OTHER WAY ROUND.THANKS.
mroldmanvcb
September 15, 2011 at 8:09 pm
CLAUSE = ALL RISKS => ACCEPTABLE
anonymous
September 16, 2011 at 1:09 pm
Anonymous writes:Dear Mr Old ManSorry,I'm quite confuse, is it coverage for clause 'A' same as 'All risk' in insurance documents?.who should endorsed the insurance policy and why it need to be endorsed?.Thanks.
mroldmanvcb
September 16, 2011 at 11:09 pm
1) As said they are the same.2) The insured party endorses the insurance policy to assign it to another party. Ex: CIF seller is responsible for buy insurance. The insurance policy indicates the seller as the insured party. The insured party will endorse the insurance policy to the buyer to enable the buyer to claim compensation from the insurance company in case the goods are lost or damaged.
anonymous
September 19, 2011 at 9:09 am
Kysha writes:Dear Mr Old man.Credit states that the insurance coverage 'irrespective of percentage' and all risks.Insurance docs presented showing coverage subject to ''AN EXCESS OF 0.50%'' of the sum insured for each and every claim.Is it a disp.? Thanks.
anonymous
September 19, 2011 at 11:09 am
Key writes:Credit stated that the “Insurance Policy endorsed in blank, for full CIF value plus at least 10% stipulating Claims payable at destination covering ……..,” Note : Port of discharge : X port, India.My questions:1) Does it mean that Insurance documents need to state "with claims payable at destination…….” ? or 2) How about If the insurance documents showing shipment to India, the survey agent in India and settlement agents in exporter country? Is it acceptable? Looking forward to your early replyBest regards
mroldmanvcb
September 19, 2011 at 10:09 pm
1) Yes. The insurance document presented must show "Claim payable at xxx, India".2) In this particular case it is acceptable if the insurance document shows the survey agent in India and settlement agent in exporter country.If the applicant expects to receive an insurance document showing the name and address of the settling agent in his country, he should so stipulate in his L/C, for example, INSURANCE POLICY COVERING INSTITUTE CARGO CLAUSE (A) INCLUDING WAR AND STRIKE RISK CLAUSES, SHOWING CLAIM SETTLING AGENT IN INDIA AND CLAIMS PAYABLE IN INDIA.
mroldmanvcb
September 19, 2011 at 11:09 pm
Originally posted by anonymous:
.Not 100% sure but it appears to be a discrepancy under ISBP para. 177 which says "If a credit requires the insurance cover to be irrespective of percentage, the insurance document must not contain a clause stating that the insurance cover is subject to a franchise or an excess deductible".
anonymous
September 20, 2011 at 9:09 am
Key writes:Good'day Mr Old Man, what if insurance documents shows "Claim payable at destination" i/o "Claim payable at xxx, India", do we accept it?And,what if Insurance document silent on that clause(Claim payable at destination), showing shipment to India, the survey agent in India and settlement agents in exporter country? do we accept it? Appreciate your comments. Best Regards.
mroldmanvcb
September 20, 2011 at 10:09 pm
It is acceptable even if it states "claims payable at destination". According to the doctrine of strict compliance, if the document fails to indicate "Claims payable at destination" or "Claim payable at xxx, India", it fails to comply with the LC requirement. The fact that the document indicates the survey agent in India does not mean "claims payable at destination".The above is just of my own opinion. No ICC opinions on the issue have been found so far.
anonymous
September 28, 2011 at 5:09 pm
Anonymous writes:Hi Mr Old Man,Certificate of Origin indicated invoice amount differ from Invoice, is it consider disp ? Does the details on C/O need to be consistent with invoice as sometimes C/O issued by manufacturer quoting different invoice number , date and amount ?Thanks.
mroldmanvcb
September 29, 2011 at 12:09 am
ISBP 183: The certificate of origin must appear to relate to the invoiced goods. The goods description in the certificate of origin may be shown in general terms not in conflict with that stated in the credit or by any other reference indicating a relation to the goods in a required document. It is discrepant as per sub-article 14(d).
anonymous
July 3, 2013 at 1:07 pm
Anonymous writes:Hi,can u pls explain me article 37 a b and c
mroldmanvcb
July 4, 2013 at 11:07 am
Hi,I think the wordings of sub-article 37(a), (b) and (c) are clear enough. No further explanations are needed. However, I would like to quote here a scenario that I answered in http://www.letterofcreditforum.com in 2007.QUOTEQUERY An issuing bank authorizing the advising / negotiating bank to add its confirmation on an L/C, refuses to honor the confirmation fee when requested by the advising bank upon notifying the L/C to the beneficiary. The L/C terms stipulate that confirmation fee is on applicant's account. The issuing bank’s reason for not honoring the beneficiary's bank (advising bank) claiming was that it is too expensive. What is the rule in such a case?—————————————–COMMENTThe following quoted from UCP 600 Article 37 would help answer your question: Article 37 (a): “A bank utilizing the services of another bank for the purpose of giving effect to the instructions of the applicant does so for the account and at the risk of the applicant”. Article 37 (c): “A bank instructing another bank to perform services is liable for any commissions, fees, costs or expenses (“charges”) incurred by that bank in connection with its instructions. If a credit states that charges are for the account of the beneficiary and charges cannot be collected or deducted from proceeds, the issuing bank remains liable for payment of charges”. In view of the above stipulations, the issuing bank is obligated to pay the confirming bank for its confirmation fee and entitled to the applicant’s reimbursement. UNQUOTERegarding sub-article 37 (b), which says: “An issuing bank or advising bank assumes no liability or responsibility should the instructions it transmits to another bank not be carried out, even if it has taken the initiative in the choice of that other bank”, the following example can help clarify the provision:Ex: An applicant requests his bank to issue an L/C in favour of a beneficiary in Iran. The L/C is issued and sent to Bank A which is instructed to advise the L/C to the beneficiary. However, Bank A, for some reason, refuses to advise the L/C. In this case, the issuing bank assumes no liability or responsibility notwithstanding whether the applicant or the issuing bank choose that advising bank.Hope it can help.Kind regards,Mr. Old Man
anonymous
July 4, 2013 at 1:07 pm
Anonymous writes:thanks a lot for explaining:)
anonymous
July 4, 2013 at 3:07 pm
Anonymous writes:can u also pls explain the term negotiation.
mroldmanvcb
July 4, 2013 at 5:07 pm
Negotiation is defined in UCP 600 (Article 2)as follows:Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank.
anonymous
November 14, 2013 at 2:11 am
David USA writes:HelloWe are an exporter that receives payment notices with a line item: Correspondent Charges. Our Advising bank says these are charges from the Issuing Bank. Shouldn't these charges be borne by the Applicant?How can i structure my future LCs to avoid this?Many thanks!
mroldmanvcb
November 14, 2013 at 5:11 pm
Correspondent charges are fees or charges payable to the issuing bank’s correspondent bank who is involved in the payment process. Correspondent charges will be deducted from the payment made to the beneficiary. If the beneficiary wants these charges to be borne by the Applicant, this may be indicated in the LC as follows: Correspondent charges (if any) in the course of payment/reimbursement are for account of the Applicant or wording of similar effect.
jeremy willis
December 2, 2016 at 9:05 pm
We received a Letter of Credit for about US2M confirmed by a London bank.
However we were not able to use the LC at all due to discrepancies making it impossible for us to ever present compliant documents. The applicants bank now wish to cancel the LC and the advising bank in London is asking us to pay confirming costs of U80,000. Do we have any obligation to pay charges for an LC we could never use and the applicant was unwilling to make the necessary amendments to make the LC workable
mroldman
December 3, 2016 at 12:30 pm
Hi,
If the L/C states confirmation fee is for the beneficiary’s account and the confirming bank added its confirmation to the L/C, then the beneficiary must pay the confirmation fee whether the L/C is utilized or not. If the beneficiary does not want to pay confirmation fee, he should so communicate to the confirming bank right at the time of receipt of the L/C or refuse to take up the L/C advised by the advising bank.
In this case the confirming bank may not add its confirmation to the L/C.
Assuming that the confirming bank cannot collect the confirmation fee from the beneficiary, it has the right to claim from the issuing bank in accordance with sub-article 37 (c) UCP 600 which says: “A bank instructing another bank to perform services is liable for any commissions, fees, costs or expenses (“charges”) incurred by that bank in connection with its instructions. If a L/C states that charges are for the account of the beneficiary and charges cannot be collected or deducted from proceeds, the issuing bank remains liable for payment of charges”.
Kind regards,
Mr. Old Man