WHETHER THE DOCUMENTS WERE SENT ON APPROVAL BASIS

The other side of Son Tra Peninsula

QUESTION

Dear Mr. Old Man,

Today I am facing a difficult case that I need your expert opinion, please could you help me to solve the matter.

A credit subjected to UCP/URR latest version. Among terms and conditions of the credit, there were:

1. LC AVAILABLE WITH ANY BANK BY NEGOTIATION.

2. REIMBURSING BANK: BANK R

3. NEGOTIATING BANK TO CABLE ADVISE US AMOUNT, DATE OF NEGOTIATING AND VALUE DATE OF REIMBURSEMENT…THREE (3) BANKING DAYS PRIOR TO ACTUAL CLAIM FOR REIMBURSEMENT.

4. A DISCREPANCY FEE OF USD50 (FOR DISCREPANT DOCS) AND ISSUING BANK’S COLLECTION CHARGES (FOR DOCS SENT ON APPROVAL BASIS)WILL BE DEDUCTED FROM THE PROCEEDS OF ANY DRAWINGS

5. DISPATCH DOCS IN ONE LOT BY COURIER DIRECTLY TO (ISSUING BANK’S NAME AND ADDRESS) CERTIFYING THAT THE TERMS AND CONDITIONS OF THE CREDIT HAVE BEEN COMPLIED WITH. THE REIMBURSING BANK HOLDS SPECIAL REIMBURSEMENT INSTRUCTIONS TO THIS LC.

The beneficiary presented the credit compliant documents at our counter but did not request us to negotiate the documents. So, as per URR725 Article 2, we could not claim reimbursement from Bank A as per LC’s instruction.

We forwarded the documents to Issuing bank (IB) certifying the compliance of the documents and stated that we have not negotiated the documents. We requested the direct payment from IB or authorization for claim reimbursement from them (if any). (Please noted that our export schedule stating the subjection to UCP, URR and without mentioning either the words “collection” or “approval” or “URC”)

The IB then authorized us to claim reimbursement from Bank R the amount that was deducted Issuing bank’s collection charges USD964.25. The IB had treated our documents to be sent on approval basis and deducted the very huge charges like that.

We did not agree with the IB and request the withdrawal of IB’s collection charges. We determined that:

1. Our documents were not sent on approval basis because: (i) we had certified the compliance of the documents and indicated in the schedule that it is subject to the version of UCP, URR rules; and (ii) Nowhere on the export schedule indicated that the documents are sent on “collection” or “approval” or subject to any version of URC rules.

2. We do not claim reimbursement from Bank R because we do not honour or negotiate the documents so we are not in the position of negotiating bank and we can not advise them by swift details of negotiation 3 days before claim as required by their LC.

3. We also emphasize that their LC quoted URR 725 and did not modify any art in this rule in definition of claiming bank at all.

However, the IB still insisted that the documents were sent on approval/collection basis for the following reasons:

Quote

Field 47A.4 of our LC cover 2 types of charges and those are discrepancy fee for discrepant documents and collection charges for documents sent on approval basis. In your case, we deducted only the collection charges of USD964,25 as you sent the docs for approval and payment and we did not collect any discrepancy considering the complying presentation. You should have sent your payment instructions directly to Bank R, the designated reimbursing bank who holds special reimbursement to this LC. In this case, you did not claim reimbursement accordingly, then, it is very clear that you sent the documents on approval/collection basis.

Unquote

Even we sent some other messages to IB arguing that the reason they did not deduct discrepancy fee does not give them any right to deduct collection charges and again affirming our views as well as requesting them to effect payment without deducting collection charges but IB still insisted that documents were sent on approval basis.

Please share with me whether the deduction collection charges of the IB is correct or not, whether our documents were sent on approval basis or not.

I am so sorry that my case is very long and may take your time but I really appreciate your precious sharing.

Thanks very much for your support,

Many thanks and best regards,

VTTT

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ANSWER

Hi,

Very sorry to hear about your case.

My bank’s experience is that where LC  available by negotiation instructs the negotiating bank to send  one set of documents to the issuing bank and claim reimbursement from a nominated reimbursing bank, we would send a set of complying  documents to the issuing bank and claim reimbursement from the reimbursing bank notwithstanding whether we have negotiated the documents or not. In case the documents are discrepant we would ask for the issuing bank’s authorization to claim reimbursement from the reimbursing bank.

Notwithstanding our experience, you were not wrong when you sent the complying documents to issuing bank for payment or for its authorization to claim payment/reimbursement from the reimbursing bank. I see that your reasoning is correct, hence, keep on insisting the issuing bank to repay the collection charge (if deducted) or to withdraw its unreasonable authorization.  If the issuing bank insists that the documents were sent on approval, it should cite the discrepancies based on which your bank (they believe) send the documents for collection.

Go ahead and tell me the result.

Good luck!

Mr. Old Man

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GOOD NEWS FROM VTTT

Dear Mr. Old Man,

I’m very glad to inform you that today the Issuing bank had remitted us full amount of the documents without deducting collection fee. They also sent a swift message advice of payment with the content as below:

Quote

TO PRESERVE OUR BUSINESS RELATIONSHIP AND ON THE STRENGTH OF YOUR AFFIRMATION ON YOUR BILL SCHEDULE REF. NO. XXX DATED XXX THAT ALL TERMS AND CONDITIONS OF THE CREDIT HAVE BEEN COMPLIED WITH, PLEASE BE ADVISED THAT WE HAVE REMITTED PAYMENT TO YOUR ACCOUNT WITH xxx FOR THE FULL AMOUNT OF XXX WITHOUT ANY DEDUCTIONS UNDER YOUR REF. NO. XXX. WE ARE NOT LIABLE FOR ANY DELAYED PAYMENT INTEREST UNDER THIS L/C.

Unquote.

Fortunately, the issuing bank does not push the matter so far J

Best regards,

VTTT