The case is
Field 41a: Availablewith Bank C in Italy (Confirming Bank) by negotiation Field 49: Confirm
Field 57a: Advise throughBank D in China
Bank C added its confirmation to the L/C and advisedthe same to Company B through Bank D.Today Bank A has received the documents from Bank D.
Questions:
1/Can Bank D make the presentation, on behalf of Company B, directly to Bank A bypassing Bank C notwithstanding that the LC was restrictedly available with Bank C? Is UCP 600 sub-article 6 (a)applicable in this case?
2/ Must Bank A adviseBank C of this issue?
I will try to answerthe questions posed.
1/ Can Bank D make the presentation, on behalf of Company B, directly to Bank A bypassing Bank Cnotwithstanding that the L/C was restrictedly available with Bank C? Is UCP 600 sub-article6 (a) applicable in this case?
Yes, Art. 6 (a) UCP 600 is applicable in this case. A beneficiary can always make a presentation at the issuing bank'scounters.
2/ Must Bank A advise Bank C of this issue?
In my opinion, not necessarily. The confirming bank must negotiate a complying presentation without recourse, if the presentation is not made itsundertaking does not exist anymore. It is however good practice for the issuingbank to inform the confirming bank.
I think the most relevantarticle concerning the presentation is article 6(d) (ii).In my opinion:
Question 1:
Yes, but there are two risks that the beneficiary should bear in mind:
(a) The presentation must be made at Bank A within the last date of presentation and/or expiry date ofthe credit, and
(b) lost in transit risk between Bank D and Bank A will be on beneficiary's account.
Question 2:
There are two aspects in thiscase:
"Who bears the confirmation fee". If confirmation fees areon:
(a) Beneficiary's account:
Bank A must communicate with Bank C regarding the confirmation fee. Article 37(c),paragraph 2 makes liable theissuing bank for the confirmation fee.
(b) Applicant's account:
Bank A requires to communicate with Bank C regarding confirmation status and totalconfirmation fee that need tobe paid.
For Q1: Can Bank D make the presentation, on behalf of Company B, directly to Bank A bypassingBank C notwithstanding that the L/C was restrictedly available with Bank C?
Is UCP 600 sub-article 6 (a) applicable in this case?
+ Yes, it can but by acting so the L/C becomesavailable with the issuing bank (A) and expiry place becomes the one of the issuing bank(see UCP 600 sub article 6(a) and 6(d)(ii)
For Q2: MustBank A advise Bank C of this issue?
+ Issuing bank should informthe confirming bank about this in orderto settle the still unpaid commissions of confirming bank, ifany, and to enable it closing its files.
Very interesting question. From the replies of the so-farcontributors I see that they have never comeacross a situation that happened more than 25 years ago to a bank I worked forat that time.
We issued an L/Cto be confirmed by a bank in Germany in favour of a German beneficiary. Thebeneficiary was, apparently, very unaware of how the L/C's work but we did not know it at the outset.Unfortunately, it was a standby (subject to UCP) and only called for copydocuments. So, what happened?
The beneficiary (later stating that he wantedto "stay on the safe side") presenteddocuments not only tothe confirming bank (what we did not know), but also directly to us. Happilyenough, they were discrepant and we refused them directly to the beneficiary.Only a couple of days later we received reimbursement claim from the confirming bank (unhappily for them they did not spot the discrepanciesand apparently paid the beneficiary).
And what was thelesson learned? From that time on we started adding a clause to all our L/C'savailable outside excluding presentation to us by anyone other than thenominated bank. What we, nevertheless, suggest is that we may, at our discretion, contact the nominatedbank and requestthem for approval of handlingthe presentation received from another entity. If they do that, we do what weare expected to do under UCP 600. It follows then that the nominated bank willmark their records accordingly for the drawing made by-passing them.
Although the above-described case was subjectto UCP 500 there is not much difference under UCP600.
So, back tothe questions:
1): UCP are rather clear in stating that an L/Cavailable with a nominated bank is also available with the issuingbank. Unless the respective provisionis excluded or modified, the issuing bank must handle the presentation received from anypresenter in accordance with UCP 600 and honour if it complies.
And it must always communicate with that presenter, i.e., they cannothonour through the nominatedbank as if that were the nominated bank who presented the documents onbeneficiary's behalf.
2) : No, the issuingbank need not inform the confirming bank, UCP 600 is silent on this issue, but theyshould (if it helps, it is yet questionable, see later). Of course, the issueof confirmation commission is also an important one but, in my view, not themost important one (and, by the way, if the beneficiary by-passed the confirming bank and they were unable to recovertheir confirmation fee, the applicantis finally liable to cover it. I am not of the opinion that the issuingbank could possibly deduct the confirming bank's confirmation fee from theproceeds of the "by-passed" presentation).
More importantlythe issuing bank should do anything to avoid a situation that the beneficiarymakes the same presentation to the confirming bank, too. And not only that, ifthe confirming bank does not know of the drawing made directly, it is stillfully obligated. The beneficiary might then make a completely new performance (e.g.,ship the goods in excessof the L/C quantity and amount) and make a new presentation to the confirming bank. The confirming bank must then honour the presentation if itcomplies, and the issuing bank is still liable to reimburse them!
By the way, ifthis happens, the issuing bank is somewhat in a trap because mere informing ofthe confirming bank need not help. I believe that it is NOT the issuing bankthat may release the confirming bank from its obligations but solely the beneficiary. So, if the beneficiary failsto release the confirming bank from its obligation and presents the documents to the confirming bank it may insist on the confirming bank's honour. I do notwant to speculate what happens next...
And do not forget that this situation is dangerous for the issuingbank even in case of a non-confirming nominated bank. The onlydifference is that if the nominated bank confirms, it must honour (ornegotiate), and if it does not confirm, it may but need not.
Finally, it would be very helpfulif UCP handled issues like that becauseI believe that many banks donot see the risks involved (unless something similar happens to them to thathaving happened to us).
Dear Radek, yes, you are right that I don't have experience to handle transaction of Standby LC alongwith copy document presentation subject to UCP 600 or 500.
However, I have experienced to handle commercial LC transaction with original documents subject to UCP 600.
Hi Nesar, yes, it may of coursehappen under "commercial" L/C as well, I only described it on a situation where it is easier for thebeneficiary to have more sets of documents at hand.
If you call for3/3 B/L (or AWB original for shipper) under a"commercial" L/C you are unlikelyto see the situation where the beneficiary presents the exactly same documents(i.e. covering the same shipment) both to the nominated AND at the same timedirectly to the issuing bank (well, with the current way of issuanceof B's/L you sometimes are not sure whether they are in fact originalsor colour photocopies and asto invoices, the beneficiary may make as many originals they wish...).
But you stillhave a risk of overshipment and overdrawing of your obligation where theobligation of the confirming bank still is in place, i.e., risk of thesituation that the beneficiary makes the first shipment (may be for the fullL/C amount and quantity) and presents documents directly to you and then itmakes the second shipment and presents documents to the confirming bank. Theconfirming bank is not liable in respect of the first shipment but remains liablewith respect to the secondone - and you remain liable to reimburse them regardless of the factthat you have already honoured for the full amount under the direct drawing.
That's why my bank tries to avoid such risk by insertinga special clausein our L/C's available outside (regardless of whether confirmedor not).
Dear Radek, Isee your point. Although it is highly unlikely but possibility to occurringthis rare instance should not be understated. I will consideryour additional clausein future. I need one morecomment from you:
1/ In my opinion, UCP 600 sub-article 6 (a) is still applicable in this case regardless of whether or notthe L/C is restrictedly available with the confirming bank or a named nominatedbank.
2/ The issuing bank is not obliged to inform the confirming bank of the issue. However,it should do that as a matter of courtesy as well asto help avoid double presentation of documents (if any).
Of course, the issuing bank must be liable for confirmation fee in case the confirming bank cannot collectfrom the beneficiary.
Potentially a dangerous situation, too.
For freelynegotiable credits we have anotherspecial clause requiringthat beneficiary assuresthat any nominated bank iscorrectly informed of the credit, all amendments thereto and all past drawingsand stating that we do not assume any liability for the case where beneficiaryfails to do so.
The other way how to avoid any risk inherent to freely negotiable credits is not to issue them, but itwould be rather difficult to explain to our applicants who require it (uponinsistence of their beneficiaries).
Would Unless theissuing bank insert a clause stating that they do not honour documents receiveddirectly from the beneficiary, I guess wouldbe of common sense , when receiving documents directlyfrom the beneficiary, to ask advising/nominated bank and the confirming bank(if any) if anypresentation of documents have been made to their counters and of what valueand ask the number of the invoice, for example.
The issuing bank can of course do that, but the issueis what legal effect such exchange of informationhas.
Let's assume that you have no stipulation in the L/C (and we know UCP 600 do not cover the effectsof this situation).
If you receive a direct presentation from the beneficiary, you must handleit under UCP 600 articles14 (sub (a) and (b)) and if it complies then under UCP 600 sub-article 7(a) you may well inform the confirming bank but it may have already receivedthe same presentation (assume it is possible), complying, andacted under UCP 600 sub-article 8 (a). What will you do? Refuse payment underthe direct presentation becauseof overshipment / overdrawing? May you do it underUCP 600? Or will you sue beneficiary for fraud?
Similarly, youmay receive a direct presentation for one shipment and later, still withinvalidity, the confirming bank may receive a complying presentation for another shipment, which may overdrawthe issuing bank's liability but still be compliant under confirmingbank's liability. Does the mere information of an issuing bank that theyreceived a direct presentation earlier release the confirming bank from itsobligation? Maybe yes, but I would have been grateful if I had seen it in UCP600 expressly. Not being stated there,I prefer inserting a clause aimingat eliminating (or at leastreducing) related risks.
I believe we shouldnot lose sight of the law whendiscussing the issue of a doublepresentation.
Every legal or natural personmust uphold the law, and this includesbanks. The duty to honouris always subject to local and international law.
In my opinion,when the issuing bank informs the confirming bank of a direct presentation, andthe beneficiary would present another set of originals to the confirming bank,this would fall under manifest fraud or abuse. In such case any ordinaryprudent and diligentbank would assumefraud and then has a duty torefrain from payment.
You would not have a right of reimbursement to the issuingbank, or the issuing bank to its applicant, if you do not perform your legal duty ofreasonable care.
Of course,this is outside of UCP 600, but bear in mind that UCP 600 or any other rule set can neverrule out fraud. Only really careful bankers can (or wish so).
Therefor a careful issuingbank would informthe confirming or nominated bank so that the involved banks can carry out theirreasonable care.
Hi Mireille,yes, you are of course right in saying that we can possibly speak about fraudin the situation you describe. However, what I wanted to say is that UCP 600could have provided some guidance or rules for situations like these – which dohappen from time to time. It may not always be the case of fraud but also lack of knowledge or experience that may bring about unexpected situations. Absent any provisionin UCP 600, my bank chose to provide its own stipulation in each and every L/C available outside our counters. Theaim is to avoid any unpleasant consequences (and also to deter fraud, if youwish).
And rememberthe real-life exampleI provided where the unexperienced beneficiary, having multiple sets of documents at hand (withno fraud involved in that) just thought that he would be on a "saferside" if he presented documents both to the issuing bank AND the confirming bank at the same time - with the confirming bank finding them compliant and the issuingbank (i.e. us) refusing them for discrepancies.
A discussion amongst the countryeditors.
The country editors have been discussing the following issue.The below answers are excerpts of the discussion.
The case is:
The L/C asksfor:
“Full set bill of lading consigned to applicant markedfreight payable at destination”
Bill of lading presenteddoes not show the carrier(name and capacity)on its face, but on the reverse the first row of the contract ofcarriage indicates: “CARRIER: ABC SHIPPING CO LTD”
On its face, the bill of lading is signed and stampedby EFG SHIPPING CO AS AGENT FOR THECARRIER.
Is this document discrepant?
A few years ago, I met the followingtext related to UCP 600 article 14(a) in a CDCSdocument:
“The doctrineof examination of documents ‘on their face’is included in UCP 600, sub-article 14(a). It means that the decision as towhether the documents comply with the terms and conditions of a documentarycredit is based exclusively upon the bank’s visual examination of the documentsand not upon someone else’s understanding or from information obtained outsideof the data appearing on the face of the documents. The phrase ‘on their face’ is not to be interpreted as meaning either theface or the reverse of a document.”
UCP 600 article14(a) states as follow:
"A nominated bank acting on its nomination, a confirming bank,if any, and the issuingbank must examine apresentation to determine, on the basis of the documents alone, whether or not the documents appear on their face toconstitute a complying presentation."
The concept of“on their face” does not refer to a simple front versus the back of a documentbut extends to the review of data withina document in order to determine that a presentation complies withinternational standard banking practice and the principles contained in UCP.
Source: Commentary on UCP 600 Article-by-Article Analysisby the UCP 600 DraftingGroup
The document is not discrepant.
I also agree that the documentis not discrepant and that the expression “on their face” perhaps must bereviewed and clarified using some other words.
I fully agreethat "on its face" does not mean that only the "front page"is to be examined. The expression "face" does not refer to any of the pages (and in my view this is quite clear and there is noreason to further elaborate on it in UCP). Nevertheless, I cannot decisivelysay anything about the document being subject matter of this query withoutseeing the document itself.
It is a UCP 600 stipulation that "...Contents of terms and conditions of carriage will not be examined."(See UCP 600 sub-article 20 (a) (v)).
From the relatedinternational standard banking practice (as reflected in various ICC Opinions)the expression "terms and conditions of carriage" as mentioned in UCPhas no connection with front page or reverse page and the banks do not examinethem regardless where they appear. I.e., what is part of "terms andconditions of carriage" does not appear "on the face" of thedocument. Therefore, if the name of the carrier appearsonly as a part of the terms and conditions of carriage, I tend to consider the document discrepant.
N.B. the banks do not examine the fine print of the general terms, regardless of where it is contained (but usually appearing on the"reverse page").
Radek’s answer reflectsmy opinion and thoughts 100%
It seems that the information appears as part of the terms and conditions whichmakes it problematic.
I agree with Radek. I had a look at an MSC bill of lading which shows 'terms and conditions' on the reverse pageand so is the case with Bs/L issued by a lot of carriers I have come across.
In addition toUCP 600 sub-article 20(a)(v) which relates to bill of lading that Radek hasreferred to, ISBP 745 paragraph K22 applicable for insurance documentreads the below,which is in line with theafore mentioned.
K22 Banks do not examine generalterms and conditions in an insurance document.
Normally I tend to agree with Radek but this time I would disagree and accept this B/L. I have always accepted similar Bs/L without anyproblem. If the name of the carrier is not identified on the "front"(recto) of the B/L you will often read "For the carrier: seeoverleaf" or "Carrier defined on verso" or similar expressions,and then you will read under "Definitions" that the carrier is XYZ.
This "explains" the front page and I do not consider such definition or reference on the verso as "terms and conditions ofcarriage" as meant under UCP 600 sub-article 20(a)(v).
Let's not forgetthat the L/C is an instrument for payment and that the need for identificationof the carrier is in the first place for the consignee (who has to know fromwhich party he should get his goods). No consigneewill refuse a B/L where the name of the carrier is well definedon the verso only.
Fair enough and that is yet anotherreason to have a closerlook at the document itself.
By the way, I amnot sure that the current situation is the same as the example you describe(the query does not indicateso). If the document identifies the carrier by the words "see overleaf", "see Terms and Conditions of Carriage" orsimilar within the specific terms (i.e., not the general terms), I will tend toaccept it if the carrier is really identified at the place it is stated to beidentified. But if there is no mention about the carrier whatsoever, be itexpressly or by reference, and the only place where the carrier is named is the"terms and conditions" part, I will tend to refuse it - just simplybecause the banks in vast majority only have a look whetherthe terms and conditions are there and do not ever read them.
Thanks. We sharethe same opinion.If there is no mentionof the carrier whatsoever, I would also rejectsuch B/L. But such situation is quite rare.More often one sees that the name of the carrier is defined on the verso (firstlines).
