Home Uncategorized WHY AVAILABLE BY PAYMENT INSTEAD OF AVAILABLE BY NEGOTIATION?

WHY AVAILABLE BY PAYMENT INSTEAD OF AVAILABLE BY NEGOTIATION?

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QUESTION

Dear Mr Old Man,

I have a scenario here:

Issuing bank is in Singapore
Advising bank/ Confirming bank in Italy.
Field 31D Date and place of expiry : 131215-SINGAPORE.
Field 41A: Available With (Confirming bank) By NEGOTIATION

Confirming bank requested to amend the following:
Field 31D: 131215-Trieste.
Field 41A: Available With (Confirming bank) By PAYMENT

Can you explain what is the reason why confirming bank is requesting for such amendment?
Would it put issuing bank for at any risks for such amendments ?

Susan
——–

ANSWER

Hi Susan,

1) Place of expiry should be also the place of availability

It is practice that the place of expiry should be also the place of availability, i.e., the place where the documents are presented. Please also refer to SWIFT’s definition of Field 31D Date and Place of Expiry, which says this field specifies the latest date for presentation under the documentary credit and THE PLACE WHERE THE DOCUMENTS MAY BE PRESENTED.

In your case, the credit is available with the confirming bank in Trieste (Italy), hence, the place of expiry should be Trieste or Italy.

2) Why available by payment instead of available by negotiation?

As far as I know, Italy levies stamp duty (financial transaction tax) on some financial instruments like bills of exchange, cheques, promissory notes…

As you know, a credit available by negotiation would require presentation of drafts (bills of exchange for negotiation, whereas a credit available by payment requires no drafts to be presented for payment. I think the fact that the confirming bank requests to amend the type of the credit (available by payment instead of available by negotiation) is to avoid stamp duty levied on bills of exchange.

The amendment is for the sake of the confirming bank. However, there’s no potential risk to the issuing bank with regard to such an amendment.

Kind regards,
Mr. Old Man
P/s: And here is a comment from my Italian friend Antonio Picchi:

Antonio Picchi: Usually a credit confirmed by a bank must be available with such bank. Stamp duties are very high in Italy 0,09pct on the bill of Exchange value. Now negotiation of documents is permitted, so we do not use a draft anymore. I have an idea about negotiation and payment concerning may be macroeconomic,: negotiation-exporter gets the money but from its bank, so money is italian and goods are still in the hands of the Country, payment: exporter gets money from abroad , the goods are in the hands of the import Country. The difference is very very little.

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2 Comments

  1. Rashed

    July 23, 2016 at 3:43 pm

    Dear Mr. Old Man,

    A credit was available with the issuing bank by payment where the expiry date was 20-05-XXXX. A presentation was made under the credit on 22-05-XXXX to the issuing bank. My questions are:

    A. Is issuing bank liable to examine documents under a credit that is already expired?
    B. If it is liable to examine, must it require to give single notice of refusal quoting all discrepancies found and doc. disposal instruction?

    Case is very simple but causing doubts among ourselves. Please help.

    Reply

    • mroldman

      July 24, 2016 at 8:03 pm

      Hi,

      Where the LC has expired, the issuing bank’s liability under the LC ceases. Therefore, the issuing bank is not obliged to examine the documents and give a notice of refusal in accordance with sub-article 16 (c) UCP 600.

      However, the issuing bank may give a notice of refusal as a matter of courteousy and this notice of refusal may or may not done refusal in accordance with sub-article 16 (c) UCP 600.

      Kind regards,
      Mr. Old Man

      Reply

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